<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
TRANSITION REPORT UNDER SECTION 13 OR15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM
TO
------------------------- ----------------------------
COMMISSION FILE NUMBER: 0-26417
THE HYDROGIENE CORPORATION
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
[C]
FLORIDA 91-1853701
-------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
12335 WORLD TRADE DRIVE, SUITE 8, SAN DIEGO, CA 92128
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(858) 675-8033
(ISSUER'S TELEPHONE NUMBER)
Check whether the issuer (1) filed all reports required to be file by
section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X]
No [ ]
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. N/A
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: As of September 30, 2000, the issuer had 68,687,830 shares of common stock
outstanding and no shares of preferred stock issued or outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [X] No [ ]
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Independent Accountants' Report................................................................1
Balance Sheets at September 30, 2000 (Unaudited) and December 31, 1999.........................2
Statements of Operations for the three months and nine months ended September
30, 2000 and September 30, 1999 and from December 28, 1995 (Inception) to September
30, 2000 (Unaudited) ..........................................................................3
Statements of Cash Flows for the nine months ended September 30, 2000 and
September 30, 1999 and from December 28, 1995 (inception) to September 30, 2000
(Unaudited)....................................................................................4
Notes to Financial Statements................................................................5-7
</TABLE>
<PAGE> 3
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors of:
The Hydrogiene Corporation & Subsidiaries
(a development stage company)
We have reviewed the accompanying consolidated balance sheet and the related
consolidated statements of operations and consolidated cash flows of The
Hydrogiene Corporation and Subsidiaries (a development stage company) as of
September 30, 2000, and for the three month and nine month periods then ended.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquires of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
November 16, 2000 Blum & Clark
San Diego, California Accountancy Group
<PAGE> 4
THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
ASSETS
(Unaudited) December 31, 1999
----------------- ----------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 359,727 $ ---
Accounts receivable 1,577 ---
Inventories 114,492 35,036
Due from officer 120,632 12,500
Prepaid expenses and other assets 63,812 13,853
--------------- --------------
Total current assets 660,240 61,389
PROPERTY AND EQUIPMENT, NET 325,554 83,657
OTHER ASSETS:
Advanced - Pursuant to merger 725,748 ---
--------------- --------------
Total assets $ 1,711,542 $ 145,046
=============== ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Cash overdraft $ --- $ 57,152
Accounts payable 999,691 936,595
Payroll payable 2,688 ---
Payroll tax payable and accrued 139,840 84,223
Interest payable 13,720 6,411
Loans payable 1,318,023 217,241
Convertible debenture 500,000 ---
Obligation under capital lease --- 2,645
--------------- --------------
Total current liabilities 2,973,962 1,304,267
--------------- --------------
LONG-TERM LIABILITIES:
Loans payable --- 168,500
Convertible debenture 1,250,000 ---
--------------- --------------
Total long-term liabilities 1,250,000 168,500
--------------- --------------
Total liabilities 4,223,962 1,472,767
--------------- --------------
STOCKHOLDERS' DEFICIT
Preferred stock, $.001 par value, 50,000 shares
authorized, none issued and outstanding --- ---
Common stock, $.0001 par value, 250,000,000 shares
authorized, 68,687,830 and 41,992,581 shares issued and outstanding 6,869 4,199
Additional paid-in capital 37,893,902 9,854,502
Accumulated deficit during development stage (39,712,565) (11,095,380)
--------------- --------------
(1,811,794) (1,236,679)
Less stock issued for future services (700,626) (91,042)
--------------- --------------
Total stockholders' deficit (2,512,420) (1,327,721)
--------------- --------------
Total liabilities and stockholders' deficit $ 1,711,542 $ 145,046
=============== ==============
</TABLE>
See accompanying notes and accountants' review report.
-2-
<PAGE> 5
THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
For the Three Months For the Three Months For the Nine Months
Ended September 30, Ended September 30, Ended September 30,
2000 1999 2000
---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
SALES $ 1,664 $ 2,901 $ 8,836
COST OF GOODS SOLD 47,267 4,949 65,466
---------------------- ---------------------- ----------------------
GROSS LOSS (45,603) (2,048) (56,630)
---------------------- ---------------------- ----------------------
OPERATING EXPENSES
Royalty 75,000 --- 346,383
Advertising --- --- 302,751
Consulting 6,837,550 45,421 19,574,923
Officer compensation 53,220 --- 4,936,013
Employee compensation and taxes 319,841 12,496 1,106,168
Research and development 247,552 --- 407,138
Professional fees 194,135 21,967 736,173
Depreciation and amortization 25,316 3,939 156,473
Bad debt expense 35,787 --- 158,787
Selling, general and administrative 374,933 81,476 810,020
---------------------- ---------------------- ----------------------
Total Operating Expenses 8,163,334 165,299 28,534,829
---------------------- ---------------------- ----------------------
LOSS FROM OPERATIONS (8,208,937) (167,347) (28,591,459)
---------------------- ---------------------- ----------------------
OTHER INCOME (EXPENSE):
Interest expense (73,508) (36) (80,312)
Interest income 2,079 --- 6,671
Gain (loss) on sale of marketable securities (2,982) --- (2,982)
Gain (loss) on abandonment of leasehold
improvements and equipment --- --- ---
---------------------- ---------------------- ----------------------
Total other income (expense) (74,411) (36) (76,623)
---------------------- ---------------------- ----------------------
LOSS BEFORE EXTRAORDINARY ITEM (8,283,348) (167,383) (28,668,082)
EXTRAORDINARY ITEM
Gain (loss) on debt extinguishment --- 50,898
---------------------- ---------------------- ----------------------
Total long-term liabilities
Net loss $ (8,283,348) $ (167,383) $ (28,617,184)
====================== ====================== ======================
Net loss per share 0.13 0.01 0.56
====================== ====================== ======================
Weighted average number of shares
outstanding - basic and diluted 63,742,388 18,188,238 51,197,748
====================== ====================== ======================
</TABLE>
<TABLE>
<CAPTION>
For the Period From
For the Nine Months December 28, 1995
Ended September 30, (Inception) to
1999 September 30, 2000
----------------------- ----------------------
<S> <C> <C>
SALES $ 21,365 $ 45,532
COST OF GOODS SOLD 28,185 271,302
----------------------- ----------------------
GROSS LOSS (6,820) (225,770)
----------------------- ----------------------
OPERATING EXPENSES
Royalty --- 1,380,015
Advertising --- 500,099
Consulting 126,210 23,774,900
Officer compensation --- 8,291,444
Employee compensation and taxes 78,016 1,598,153
Research and development 8,778 480,328
Professional fees 106,221 1,232,032
Depreciation and amortization 11,818 200,180
Bad debt expense --- 158,787
Selling, general and administrative 208,234 1,527,170
----------------------- ----------------------
Total Operating Expenses 539,277 39,143,108
----------------------- ----------------------
LOSS FROM OPERATIONS (546,097) (39,368,878)
----------------------- ----------------------
OTHER INCOME (EXPENSE):
Interest expense --- (159,586)
Interest income 32 6,891
Gain (loss) on sale of marketable securities --- (2,982)
Gain (loss) on abandonment of leasehold
improvements and equipment --- 1,189
----------------------- ----------------------
Total other income (expense) 32 (154,488)
----------------------- ----------------------
LOSS BEFORE EXTRAORDINARY ITEM (546,065) (39,523,366)
EXTRAORDINARY ITEM
Gain (loss) on debt extinguishment (189,198)
----------------------- ----------------------
Total long-term liabilities
Net loss $ (546,065) $ (39,712,564)
======================= ======================
Net loss per share 0.04 0.27
======================= ======================
Weighted average number of shares
outstanding - basic and diluted 12,640,503 22,943,740
======================= ======================
</TABLE>
See accompanying notes and accountants' review report.
-3-
<PAGE> 6
THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
For the period from
For the nine month For the nine month December 1, 1995
period ended period ended (inception) to
September 30, 2000 September 30, 1999 September 30, 2000
(unaudited) (unaudited) (unaudited)
------------------- ------------------ --------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (28,617,185) $ (546,065) $ (39,712,564)
Adjustments to reconcile net loss to net
cash used by operating activities:
Bad debt expense 158,787 --- 158,787
Depreciation and amortization 156,473 11,818 200,180
Loss on abandonment of assets --- --- (1,189)
Loss on sale of marketable security 2,982 --- 2,982
(Gain) Loss on extinguishment of debt --- --- 189,198
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivables (1,577) (846) (1,577)
(Increase) decrease in prepaid expense (49,959) (63,603) (63,812)
(Increase) decrease in inventories (79,456) (52,369) (114,492)
(Increase) decrease in advances (725,748) --- (725,748)
(Increase) decrease in cash overdraft (57,152) --- ---
Increase (decrease) in accounts payable 63,096 266,087 999,691
Increase (decrease) in interest payable 7,309 --- 13,720
Increase (decrease) in payroll taxes payable 139,840 4,328 139,840
Increase (decrease) in payroll payable (81,535) 10,753 2,688
----------------- ------------------ ------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES (29,084,125) (369,897) (38,912,296)
----------------- ------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (3,964) --- (3,964)
Proceeds from sale of marketable securities 982 --- 982
Purchase of property and equipment (307,841) (46,242) (524,545)
----------------- ------------------ ------------------
NET CASH PROVIDED (USED) IN
INVESTING ACTIVITIES (310,823) (46,242) (527,527)
----------------- ------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of loans (168,500) (3,200) (529,955)
Loan proceeds 2,101,466 137,498 5,527,338
Proceeds from convertible debenture 500,000 --- 500,000
Payment on capital lease obligations (2,645) --- (22,281)
Due from officer (108,132) --- (120,632)
Issuance of common stock 27,432,486 232,944 34,445,080
----------------- ------------------ ------------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 29,754,675 367,242 39,799,550
----------------- ------------------ ------------------
NET INCREASE (DECREASE) IN CASH 359,727 (48,897) 359,727
CASH AT BEGINNING OF PERIOD --- 66,752 ---
================= ================== ==================
CASH AT END OF PERIOD $ 359,727 $ 17,855 $ 359,727
================= ================== ==================
SUPPLEMENTAL DISCLOSURES:
Common stock exchanged for notes payable $ 2,777,876 $ --- $ 3,399,890
================= ================== ==================
Equipment acquired under capital lease $ --- $ --- $ 19,636
================= ================== ==================
Intangible exchanged for common stock $ 815,000 $ --- $ 815,000
================= ================== ==================
Intangible acquired for note payable $ 200,000 $ --- $ 200,000
================= ================== ==================
</TABLE>
See accompanying notes and accountants' review report.
-4-
<PAGE> 7
NOTE 1. BASIS OF PRESENTATION
The accompanying reviewed interim consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles and the rules and regulations of the Securities and
Exchange Commission for interim financial information. Accordingly,
they do not include all the information and footnotes necessary for a
comprehensive presentation of financial position and results of
operations.
It is management's opinion, however, that all adjustments (consisting of
normal recurring adjustments) have been made which are necessary for a
fair financial statement presentation. The results for the interim
period are not necessarily indicative of the results to be expected
for the year.
For further information, refer to the consolidated financial statements
and footnotes included in the Company's Form 10-KSB for the year ended
December 31, 1999.
NOTE 2. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or net
realizable value and consists of purchased parts and prepackaged products at
September 30, 2000:
<TABLE>
<S> <C>
Raw Materials $ 56,214
Work in process 16,389
Finished goods 41,889
--------
$114,492
</TABLE>
NOTE 3. LOANS AND CONVERTIBLE DEBENTURES
During the three months ended September 30, 2000, the Company reduced a
loan payable with a stockholder in the amount of $154,688 through the
issuance of stock.
During the three months ended September 30, 2000, the Company reduced the
loan payable to an officer in the amount of $16,000.
During the three months ended September 30, 2000 the Company entered into
a financing agreement with an offering amount of $17,500,000, received
$1,250,000 as enhancement funding that was structured as a three year,
8% Convertible Debenture convertible into common stock of the Company
with interest payable quarterly in common stock or cash at the option
of the Investors. The agreement was not signed by an officer and
therefore the agreement is in dispute.
During the three months ended September 30, 2000 the Company entered into
a Convertible Note $500,000 which is secured by an interest in certain
of the Company's assets and the officers' assets. The term of the loan
is for one year at eight (8) % interest per annum payable quarterly
commencing October 20, 2000. Upon the enhancement funding the
<PAGE> 8
Company agreed to issue three (3) million five-year warrants to
purchase shares of the Company common stock and agreed not to seek
further financing without approval of the noteholder. The Company
defaulted on the note and as a settlement, agreed to voluntarily
surrender three million five hundred fifty thousand (3,550,000) shares
of common stock.
NOTE 4. STOCKHOLDERS' EQUITY
Conversion of Notes Into Common Stock
During the three months ended September 30, 2000 loans aggregating
$171,688 were converted into 504,966 common shares. The shares were
valued at the quoted trading price on the conversion date. There was
no gain or loss resulting from the exchange of debt.
Common Stock Issued For Services
During the three months ended September 30, 2000, 5,648,921 shares of
common stock were issued for services to various service providers.
The shares were valued at $5,949,198, the quoted trading prices on
the agreement dates.
Legal Issues
A dispute has arisen regarding shares of common stock issued to officers
during the three month period ended September 30, 2000. Due to
unavailability of some records the total number of valid common stock
shares is under investigation by a national certified public
accountant firm, which is in the process of analyzing the actual
shares outstanding.
Employee compensation
During the three months ended September 30, 2000 the Company issued
70,000 shares of common stock at the quoted trading price in lieu of
compensation to employees valued at $28,475.
NOTE 5. ACQUISITION OF INTANGIBLE
The Company acquired an intangible product name valued at $1,015,000 in a
prior quarter. The Company issued 500,000 shares of common stock
valued at $815,000, the quoted trading price on the Agreement dates, a
note payable of $200,000 payable in four installments of $50,000
starting August 30, 2000, and issued 500,000 options exercisable at a
price of $0.075 per share vesting on August 15, 2000 and exercisable
until three years from that date. During the three months ended
September 30, 2000 this venture failed and a total of $930,418 was
written off to expense.
NOTE 6. PENDING ACQUISITIONS
The Company has entered into a memorandum of understanding to license
certain intangible assets and formulas from LifeQuest, Inc., valued at
$5,105,593. The agreement grants the Company an exclusive five-year
license from LifeQuest, Inc. to its patented products,
<PAGE> 9
trademarks, formulas and product names. The Agreement calls for the
Company to pay cash of $232,300, issue 9,851,745 shares of common
stock valued at $3,349,593 and make monthly payments of $28,700 over
the life of the license. The Company will also acquire an option to
purchase the intangible assets for two years from the date of the
Agreement.
NOTE 7. LEGAL MATTERS
The Company is subject to a lawsuit seeking damages for breach of an
agreement to issue unrestricted stock, fraud, and innocent
misrepresentation. The Company has not yet assessed the likely outcome
of this lawsuit.
The Company is subject to various lawsuits regarding officers of the
corporation. Some of the assets of the Company have been frozen until
the lawsuits are resolved.
NOTE 8. SUBSEQUENT EVENTS
The Company received the approval of its trademark for Hydrogiene.
The Company had some of its bank accounts frozen due to the dispute
between the former and current officers of the Company.
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
The Hydrogiene Corporation ("Hydrogiene" or the "Company") is a
development stage company originally incorporated on December 28, 1995 in the
State of Delaware and reincorporated on August 28, 1997 in the State of
California. The Company's net assets were acquired by a Nevada corporation on
October 13, 1998 and, subsequently, merged into a corporation incorporated in
the State of Florida. The Company manufactures and markets the Hydrogiene family
of personal care systems that convert tank-type and flush-type valve toilets
into personal multi-functional cleansing, water therapy and sitz bath systems.
The Company's systems are similar in function to Europe's bidets without the
additional plumbing and space requirements. To the best knowledge of the
Company, there is no other company in the U.S. engaged in manufacturing or
marketing goods similar to those manufactured or marketed by the Company. While
there are products which can convert a standard toilet to a bidet-type fixture,
the Company believes its product is the only one which can be added to a
standard toilet by the homeowner without modifying the fixture itself.
The Hydrogiene Corporation has placed primary emphasis on product
development and testing and customer test marketing. The Company has made
limited sales of its products and has been, and is currently operating at a
loss. The Company requires additional funding to continue its operations and to
accomplish its growth objectives and the marketing of its products.
The Company plans to raise an additional $5,000,000 in the first quarter
of the year 2001, which will provide working capital to fund the Company's
operations for the near term.
The Company's securities are quoted on the Over-the-Counter Bulletin
Board ("OTCBB") under the symbol HICS.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 1999
REVENUES
Hydrogiene's revenues were $8,836 for the nine months ended September 30,
2000 as compared to $21,365 for the nine months ended September 30, 1999, a
decrease of 58%. As a development stage company, Hydrogiene is still in the
process of developing its customer base and expects its revenues to increase in
the foreseeable future.
COST OF GOODS SOLD
The cost of goods sold was $65,466 for the nine months ended September
30, 2000 as compared to $28,185 for the comparable period ended September 30,
1999, an increase of 132%. This increase is related to direct costs of payroll
and material increases during the period.
OPERATING EXPENSES
The Company's Operating expenses increased to $28,534,829 for the nine
months ended September 30, 2000 as compared to $539,277 for the nine months
ended September 30, 1999. This increase was attributable to an increase in the
following expense categories: marketing and promotion; consulting services;
officer and employee compensation; research and development; professional fees;
<PAGE> 11
depreciation and amortiation; bad debt expense and selling, general and
administrative expenses. The increases in consulting costs and officer
compensation are in stock-based compensation rather than in salary or other cash
actually paid. The Company engages consultants primarily to generate new
business, identify potential acquisitions, introduce the Company to potential
joint venture partners and to expand Hydrogiene's customer base. As
consideration for these services, the Company has adopted a compensation
strategy based on the issuance of shares of its common stock rather than paying
consulting fees in cash. The Company has developed a similar strategy for
officer and director compensation so that instead of awarding cash bonuses to
officers and directors, Hydrogiene issues shares of its common stock to them as
compensation. Thus Officer Compensation increased to $4,936,013 for the nine
months ended September 30, 2000. The Company believes that one of the benefits
of this type of compensation is that it provides officers with an immediate
incentive to focus on improving the Company's financial results and thus
increase the stock price. In addition, although accounting conventions require
that the Company expense the shares issued at their fair market value, the
Company has not had to expend any cash for the receipt of these services.
Consulting costs were $19,574,923 for the nine months ended September 30,
2000 as compared to $126,210 during the nine months ended September 30, 1999.
This increase is attributable to the issuance of shares of the Company's common
stock as discussed above.
Employee compensation and taxes increased to $1,106,168 for the nine
months ended September 30, 2000 as compared to $78,016 during the nine months
ended September 30, 1999. This increase of 1,318% is attributable to the
Company's hiring of additional personnel including a compliance director,
salespeople, and MIS personnel. A reduction in force was made during September
2000, which has reduced the monthly cash compensation and will impact the fourth
quarter of 2000.
Professional fees were $736,173 for the nine months ended September 30,
2000 as compared to $106,221 for the comparable period ended September 30, 1999,
an increase of 593.5%. Professional fees consist of fees for legal, accounting
and consulting services performed on behalf of the Company. The increase is due
primarily to the use of consultants and attorneys. A reduction in the use of
outside consultants is being considered and any action taken should impact the
fourth quarter 2000.
Depreciation and amortization expense was $156,473 for the nine months
ended September 30, 2000 as compared to $11,818 during the comparable period
ended September 30, 1999, an increase of 122%. The increase in depreciation and
amortization was attributable primarily to asset acquisitions.
Bad debt expense was $158,787 during the nine months ended September 30,
2000 as compared to nil during the nine months ended September 30, 1999.
Selling, General and Administrative expenses were $810,020 during the
nine months ended September 30, 2000 as compared to $208,234 during the
comparable period ended September 30, 1999, an increase of 289%. The increase
was primarily attributable to expenses associated with the Company's
investigation and analysis of potential acquisitions.
Total operating expenses were $28,534,829 for the nine-month period ended
September 30, 2000 as compared to $539,277 for the nine months ended September
30, 1999.
OTHER INCOME (EXPENSE)
The Company had other income (expense) during the nine months ended
September 30, 2000 of ($76,623) as compared to $32 during the comparable period
ended September 30, 1999.
<PAGE> 12
EXTRAORDINARY ITEM
The Company experienced a loss in the conversion of debt to stock in the
amount of $50,898 during the nine months ended September 30, 2000.
NET LOSS
For the nine months ended September 30, 2000, the Company had a loss of
($28,617,184) as compared to a net loss of ($546,065) during the nine months
ended September 30, 1999. This increase is attributable to the Company's
previously noted increase in its various operating expenses and professional
fees.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO
THE THREE MONTHS ENDED SEPTEMBER 30, 1999
REVENUES
Hydrogiene's revenues were $1,664 for the three months ended September
30, 2000 as compared to $2,901 for the three months ended September 30, 2000, a
decrease of 43%. As discussed earlier, Hydrogiene is a development stage company
and is in the process of developing its market, attaining more widespread market
acceptance of its products and increasing its distribution channels. Hydrogiene
expects revenues to increase in the foreseeable future.
COST OF GOODS SOLD
The cost of goods sold was $47,267 for the three months ended September
30, 2000 as compared to $4,949 for the comparable period ended September 30,
1999, a decrease of 85%. This decrease is commensurate with the Company's
decrease in revenues during the period.
OPERATING EXPENSES
The Company's Operating expenses increased to $8,163,334 for the three
months ended September 30, 2000 as compared to $165,299 for the three months
ended September 30, 1999. This increase was attributable to an increase in
marketing and promotion, consulting services, officer and employee compensation,
research and development, professional fees, depreciation and amortization, bad
debt expense and selling, general and administrative expenses. As mentioned
earlier, the increases in consulting costs and officer compensation are in
stock-based compensation rather than in salary or other cash actually paid.
Officer Compensation increased to $53,220 for the three months ended September
30, 2000 as compared to nil for the three months ended September 30, 1999.
Consulting expenses were $6,837,550 for the three months ended September
30, 2000 as compared to $45,421 during the comparable period ended September 30,
1999, an increase attributable primarily to the Company's strategy of issuing
shares of common stock in lieu of paying cash.
Employee compensation totaled $319,841 for the three months ended
September 30, 2000 as compared to $12,496 for the three months ended September
30, 1999. This increase is attributable to the Company's hiring of additional
personnel including a compliance director, salespeople, and MIS personnel.
<PAGE> 13
Professional fees were $194,135 for the three months ended September 30,
2000 as compared to $21,967 during the comparable period ended September 30,
1999. The increase is due primarily to the use of consultants and attorneys. A
reduction in the use of outside consultants is being considered and any action
taken should impact the fourth quarter 2000.
Depreciation and amortization expense was $25,316 for the three months
ended September 30, 2000 as compared to $3,939 during the comparable period
ended September 30, 1999. The increase in depreciation and amortization was
attributable primarily to asset acquisitions.
Bad debt expense was $35,787 during the three months ended September 30,
2000 as compared to nil during the three months ended September 30, 1999. The
Company ceased its involvement in ventures it had been pursuing and was
therefore required to write off certain loans which had been extended to the
companies involved in these ventures.
Selling, General and Administrative expenses totaled $374,933 during the
three months ended September 30, 2000 as compared to $81,476 during the
comparable period ended September 30, 1999. As mentioned earlier, the increase
was largely attributable to expenses associated with the Company's pursuit and
analysis of potential acquisitions.
Total operating expenses increased by $7,998,035 to $8,163,334 during the
three-month period ended September 30, 2000 as compared to total operating
expenses of $165,299 for the three months ended September 30, 1999. This
increase was attributable to the various factors discussed earlier.
OTHER INCOME (EXPENSE)
The Company had other income (expense) during the three months ended
September 30, 2000 of ($74,411) as compared to ($36) during the comparable
period ended September 30, 1999. This expense was net of interest income
realized by the Company in the amount of $2,079 for the three months ended
September 30, 2000 as compared to nil in the comparable period ended September
30, 1999.
NET LOSS
For the three months ended September 30, 2000, the Company had a loss of
($8,283,348) as compared to a net loss of ($167,383) during the three months
ended September 30, 1999. This increase is attributable to the Company's
previously noted increase in its various operating expenses and professional
fees.
LIQUIDITY AND CAPITAL RESOURCES
The Company had minimal cash capital at the end of the three months ended
September 30, 2000 as well as for the comparable period ended September 30,
1999. The Company will be forced to either borrow funds or to sell shares of its
common stock in order to fund operations. Historically, the Company has financed
its working capital requirements through internally generated funds, that is,
through the sale of shares of its common stock, and proceeds from short-term
bank and other borrowings.
As of June 30, 2000, the Company had cash capital of $359,727 as compared
with cash capital of nil for the comparable period ended September 30, 1999.
<PAGE> 14
The Company currently anticipates existing sources of liquidity and cash
to be insufficient to satisfy its operational needs through the next nine
months. To make future acquisitions or for other forthcoming similar expenses,
the Company may seek to increase the amount of its credit facilities, negotiate
additional credit facilities or issue corporate debt or equity securities. Any
debt incurred or issued by the Company may be secured or unsecured, fixed or
variable rate interest and may be subject to such terms as the Board of
Directors of the Company deems prudent. The Company expects any proceeds from
such additional credit or sales of securities to be used primarily in the
development and marketing of its products. No assurances can be given that the
Company will be successful in obtaining any additional credit facilities or in
generating sufficient capital from the sale of its securities to adequately fund
its operational needs.
The Company does not believe that its business is subject to seasonal
trends.
The Company does not believe that inflation had a significant impact on
the Company's results of operations for the period presented. On an ongoing
basis, the Company attempts to minimize any effects of inflation on its
operating results by controlling operating costs, and, whenever possible,
seeking to insure that product price rates reflect increases in costs due to
inflation.
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in the section captioned Management's Discussion
and Analysis or Plan of Operation which are not historical are "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
These forward-looking statements represent the Company's present expectations or
beliefs concerning future events. The Company cautions that such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among other things, the uncertainty as to the Company's future profitability;
the ability to hire, train and retain sufficient qualified personnel; the
ability to obtain financing on acceptable terms to finance the Company's growth
strategy; and the ability to develop and implement operational and financial
systems to manage the Company's growth.
New Accounting Pronouncements
No new pronouncement issued by the Financial Accounting Standards Board,
the American Institute of Certified Public Accountants or the Securities and
Exchange Commission is expected to have a material impact on the Company's
financial position or reported results of operations.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
THE HYDROGIENE CORPORATION, a Florida Corporation, vs. CHARLES W. KALLMANN, an
individual; and DOES 1 through 100, inclusive.
Superior Court of the State of California, for the County of San Diego.
Case No. GIC 756131. This action was commenced on October 11, 2000 by the
Company filing a Complaint for:
(1) Interference with existing and prospective economic
advantage;
<PAGE> 15
(2) Trespass;
(3) Conversion;
(4) Ultra vires, pursuant to section 607.0304 of the Florida
business organizations code; and
(5) Breach of fiduciary duty.
The suit was initiated by the Company in response to certain actions taken by
the Defendant after his removal from as the Company's Chief Executive Officer
and Chairman of the Board of Directors. A Temporary Restraining Order (TRO) was
issued on October 12, 2000. An Ex Parte Minute Order was issued sustaining the
TRO on October 17, 2000. An injunction was issued against the Defendant and
Does on November 9, 2000.
THE HYDROGIENE CORPORATION, a Florida Corporation, vs. AMERICAN BIDET COMPANY, a
Florida Corporation, doing business as Mr. Bidet, Continental Bidet and/or US
Bidet and ARNOLD COHEN, individually and doing business as Bidet Products
Consumer Reports and DOES 1 through 100, inclusive.
United States District Court, Southern District of California, Case No.
00 CV 0839 H. This action was commenced on April 25, 2000 by the Company
filing a Complaint For Trademark Infringement, Unfair Competition,
Defamation, and Preliminary and Permanent Injunction arising from
defendants improper use of the trade name "Hydrogiene" on two websites
and statements made on those websites considered slanderous by the
Company. Relief sought - damages and injunction.
G. KRISHNA KUMAR, M.D., individually, and as Trustee for the KUMAR PENSION TRUST
vs. HYDROGIENE CORPORATION, a Florida corporation, and CHARLES KALLMANN.
State of Michigan, Circuit Court for the County of Oakland, Case
00-021462-CK. The action commenced on March 8, 2000. This is an action
against Hydrogiene and Kallmann for alleged breach of an agreement to
issue unrestricted stock. Causes of action have been alleged for breach
of contract, fraud, and innocent misrepresentation. Relief sought -
damages.
BRITISH FAR EAST HOLDINGS, LTD., a Delaware corporation vs. THE HYDROGIENE
CORPORATION, a Florida corporation, and DOES 1 through 10, inclusive. Superior
Court of California, County of San Diego, Case No.727621.
Action commenced in 1998. Action against Hydrogiene for alleged breach of
contract. Hydrogiene conceded it owed $18,000 plus issuance of certain
stock to plaintiff and offered same. The action went to trial in January,
2000. Plaintiff received the amount previously offered by defendant.
Plaintiff has not entered formal judgment.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
See Consolidated Financial Statements.
ITEM 5. OTHER INFORMATION
PURCHASE OF UNIQUE FORMULAS, PROCESSES AND TRADEMARKS FOR USE WITH THE
COMPANY'S PRODUCTS
<PAGE> 16
Through a wholly owned subsidiary being formed, the Company plans to
purchase certain formulas, processes and trademarks for use in connection with
the manufacture and sale of a new line of beauty and skin care products, which
the Company believes are compatible with its Theraclenze and Mediclenze
products. The trademarks associated with the formulas and processes are well
recognized in the market. Such formulas and processes are unique and the Company
believes that such formulas, processes and trademarks will enable the Company to
market its Theraclenze and Mediclenze and other products more successfully. The
Company anticipates that the cost of such formulas, processes and trademarks
will be in excess of $3 million and that the purchase will not be completed
until some time in the future after the Company has thoroughly tested and
evaluated the formulas and processes.
LICENSING AGREEMENT WITH LIFEQUEST, INC.
In a transaction related to the acquisition of formulas, processes and
trademarks, the Company has entered into a Licensing Agreement with LifeQuest,
Inc., a Utah corporation ("LifeQuest"). In accordance with the terms of the
Licensing Agreement, the Company will test and evaluate the formulas and
processes prior to acquiring an exclusive worldwide license with LifeQuest.
NATIONAL BROKERS & DISTRIBUTORS
The Company has acquired rights to the name National Brokers & Distributors
from National Capital Companies.
GOING CONCERN
These financial statements have been prepared on the basis of accounting
principles applicable to a "going concern" which assume that Hydrogiene will
continue in operation for at least one year and will be able to realize its
assets and discharge its liabilities in the normal course of operations.
Conditions and events exist which may cast doubt about the Company's ability to
continue as a "going concern." The Company has incurred net losses of
approximately $39,368,878 during this development stage. Cash used in operating
activities totaled approximately $39,354,787. As of September 30, 2000 the
Company required additional financing for its business operations.
The Company's ability to continue as a going concern will depend on numerous
factors including, but not limited to, adequate sources of capital, the ability
to develop profitable results of operations, continued progress in increasing
the Company's cash flows sufficient to meet the Company's short and long term
liquidity needs. The Company is actively pursuing alternative financing and has
had discussions with various third parties, although no firm commitments have
been obtained. Management is also pursuing acquisitions of other businesses with
existing positive cash flows. In addition, management is working on increasing
sales, attaining reductions in the Company's operating costs and achieving
efficiencies in order to enhance the Company's overall profitability.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this Form 10-QSB:
2 Amended and Restated Articles of Incorporation and Bylaws of The
Hydrogiene Corporation (f/k/a High Climbers, Inc.), is incorporated
by reference from the Company's 8-K/A report filed with the SEC on
February 25, 2000.
<PAGE> 17
3.1 Form of Common Stock Purchase Warrants with Seascape Management
Company, LLC, Fern Stotsenberg, Bradley Gardner, Aerial Gardner,
Gregory Gardner and Philip Gardner, is incorporated by reference
from the Company's Form 10-KSB filed with the SEC on April 14, 2000.
3.2 Form of Warrant to Purchase Common Stock, with Evergreen Financial
Services, Inc., dated August 25, 1998, is incorporated by reference
from the Company's Form 10-KSB filed with the SEC on April 14, 2000.
6.1 License Agreement dated August 21, 1997, as amended on September 1,
1997, is incorporated by reference from the Company's Form 10-KSB
filed with the SEC on April 14, 2000.
6.2 Hydrogiene Employment Contract dated October 1997 with Charles
Kallmann, is incorporated by reference from the Company's Form
10-KSB filed with the SEC on April 14, 2000.
6.3 Hydrogiene Stock Option Agreement dated August 11, 1999 with Charles
Kallmann, is incorporated by reference from the Company's Form
10-KSB filed with the SEC on April 14, 2000.
6.4 Hydrogiene Stock Option Agreement dated August 11, 1999 with Michael
Brette, is incorporated by reference from the Company's Form 10-KSB
filed with the SEC on April 14, 2000.
27.1 Financial Data Schedule (electronically filed herewith).
(b) REPORTS ON FORM 8-K
Form 8-K was filed with the Securities and Exchange Commission on
November 15, 2000 to report the Company's dismissal of its certifying
accountants, Weinberg & Company, P.A.
<PAGE> 18
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
The Hydrogiene Corporation
A Florida corporation
(Registrant)
Date: November 17, 2000 /s/ John M. Bailey
-------------------
John M. Bailey, Chief Executive Officer
Date: November 17, 2000 /s/ John M. Bailey
-------------------
John M. Bailey, Chief Accounting Officer