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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended December 31, 1999.
[_] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from ____________ to ____________
Commission File Number 0-26417
THE HYDROGIENE CORPORATION
(Name of small business issuer in its charter)
Florida 91-1853701
(State or other jurisdiction (I.R.S. Employer
of Incorporation or organization Identification No.)
12335 World Trade Drive, Suite 8
San Diego, CA 92128
(Address of principal executive offices)
(858) 675-8033
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
None.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT
None.
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the preceding 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. [X] Yes [_] No
Check if there is no disclosure of delinquent filers in response to item 405 of
Regulation S-B is not
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contained in this form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [_]
Issuer's revenues for its fiscal year ended December 31, 1999 were $21,942.
The aggregate market value of voting stock held by non-affiliates of the issuer
as of March 31, 2000 was $48,528,667 (based on the last reported sale price on
the NASD OTC Bulletin Board on that date).
The number of shares outstanding of the registrant's Common Stock as of March
31, 2000 was 45,301,385.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Transitional Small Business Disclosure Format (Check One) Yes [X] No [_]
PART I
ITEM 6. DESCRIPTION OF BUSINESS
General Development of Business
-------------------------------
Hydrogiene is a development-stage company, originally incorporated on
December 28, 1995 in the State of Delaware, reincorporated on August 28, 1997 in
the State of California, whose net assets were acquired by a Nevada inactive
corporation on October 13, 1998 and, subsequently, merged into a trading shell
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 of the Company's awareness, 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, easily by the homeowner, without modifying the
fixture itself. The Company requires additional funding in order to accomplish
its growth objectives and marketings of its products.
Principal Products
------------------
The Company's products are the Theraclenze and Mediclenze systems,
European-style personal hygiene and water therapy systems for tank-type or
flushometer-equipped toilets. These systems may be installed on existing
toilets without incurring additional plumbing, electrical or construction costs.
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Each unit includes a limited lifetime warranty as well as a 3-year warranty on
springs and washers.
The Theraclenze System. The Theraclenze System comes completely assembled,
requiring only affixing the Theraclenze System to the toilet with four screws.
The installation procedure is usually less than five minutes. The Theraclenze
System fastens onto any water inlet coupling and ballcock fitting used by United
States toilets over the past 50 years. The Theraclenze System is designed to be
easily used by the physically challenged or handicapped. Once released, the
system automatically turns itself off or may be kept on until desired to be
turned off at the option of the user. The auto control handle prevents the
possibility of flood or waste water. The unit retracts when not in use, thereby
preventing it from being soiled. The Theraclenze System is designed so that
soiled water cannot flow back into the water tank. The System is supplied in a
lasting clinical white finish with a lifetime anti-bacterial surface. High
tensile strength plastic construction of the Theraclenze System allows the
Company to offer a lifetime warranty on all parts exclusive of springs, washers,
and O-rings. The Company's Theraclenze System is designed to meet all states'
health and building codes. The Company expects the Theraclenze System to be
Medicare listed in the latter part of 2000.
The Mediclenze System. The Mediclenze Flush Valve Intimate Personal Care
and Therapy System, a companion to the Theraclenze model, is specifically
designed for commercial use and installation to existing Flushometer Systems.
The Mediclenze System differs from the Theraclenze System in several ways. It
was designed to endure heavy-duty usage over long periods of time. The
installation is tamper and vandal resistant, and is permanently fixed to the
bottom of the seat. Corrosion resistant materials are used throughout the
Mediclenze System. The Mediclenze System features an anti-bacterial coating
impregnated into the ABS plastic surfaces to combat several bacteria. The
Company believes that the Mediclenze System meets all applicable plumbing codes
used throughout the United States. The System was specifically designed for use
in hospitals, hotels (in their public restrooms), office and commercial
buildings, wherever tank type toilets are not installed. An off-balance sheet
lease as well as a finance program have been designed to make volume
installations affordable. The Mediclenze System comes with a limited lifetime
warranty on all parts exclusive of O-rings, washers and hoses.
Both the Theraclenze and Mediclenze Systems are currently undergoing
extensive testing by Underwriters Laboratories, an independent entity that
performed durability, corrosion, seepage and water pressure limits for the
International Association of Plumbing and Manufacturers Organization ("IAMPO").
No conclusions as to validity or health benefits of the Hydrogiene personal care
systems has been reached as of yet.
Marketing
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The Company intends to employ a variety of marketing techniques to attract
potential consumers of its products. In addition to trade shows, conferences and
conventions, the Company intends to mount an integrated marketing campaign. This
marketing campaign will target both potential dealers and distributors of the
Company product and end users and customers of the Hydrogiene products. The
Company intends to deploy a multiple media marketing campaign to increase the
process of awareness, interest, evaluation, trial and purchase of the Company
product by prospective
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customers.
As a part of its promotional campaign, the Company placed an advertisement
in the Sears Home Care catalog in June, 1999. Subsequently, the Company shipped
its initial order to Sears as stock inventory for Sears. As a result of this
advertising effort, 48 units have been ordered and shipped. Also, two newspaper
articles briefly describing the Company's personal hygiene and water therapy
systems were featured in April 1999 issues of the Los Angeles Times and Chicago
Tribune. The major purpose of these articles was to introduce the Company to the
buying public and to inform the public concerning the Company's plans to market
its personal care systems to the U.S. consumers. Articles did not contain any
technical information.
The Company has established its presence on the Internet through a Web site
at http.//www.hydrogiene.com. This Web site has been indexed with national and
--------------------------
international search engines, enabling consumers around the globe to be able to
access Hydrogiene personal care systems information.
The Company intends to launch a print media advertisement campaign.
Management has identified several trade, general consumer and special interest
group promotion publications. The Company also intends to develop a national
television advertising campaign with the production of an informercial utilizing
several spokespersons in order to reach the widest possible segments of the U.S.
population.
Distribution Methods
--------------------
Commencing in April 2000, the Company intends to deliver its Hydrogiene
Theraclenze and Mediclenze Systems to several retail outlets throughout the
United States. The Company also intends to install its products in hotels and
other leisure facilities in the San Diego, Orange County and Riverside Counties
of Southern California, as well as several hotels located in Las Vegas, Nevada.
The Company intends to generate cash flow as a result of these operations.
Currently, the Company has placed the primary emphasis on product
development and dependability, 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 achieve its growth
objectives. If the Company does not receive additional funding, it will not be
able to pursue its marketing plan and, in such case, may not be able to
successfully conduct its operations.
Research and Development Activities.
-----------------------------------
During the last two fiscal years, the Company estimates it spent $60,235 on
research and development activities. No research and development activities were
sponsored by any customer.
Employees
---------
The Company currently employs seven full-time employees, including the
Officers.
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Material Effects of Environmental Laws
--------------------------------------
There are no material effects that compliance with Federal, State and Local
provisions which have been enacted or adopted regulating the discharge of
materials into the environment, may have upon the capital expenditures, earnings
and competitive position of the Company.
Sources and Availability of Raw Materials and Names of Principal Suppliers
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The Company sub-contracts all components manufacturing of its products.
Several vendors supply plastic parts, tubing, and rings and springs coating. The
Company's key vendors are Pope Plastics of Canoga Park, California and Watts
Regulator of Carlsbad, California. Pope Plastics supplies to the Company molds
and plastics for the Hydrogiene unit. Watts Regulator supplies to the Company
vacuum breakers. Presently, there are no contractual arrangements between the
Company and suppliers. Purchase orders are written to request parts as required
to meet delivery schedule when production commences. The Company owns all tools
and molds used to fabricate its plastic parts.
Effect of Existing or Probable Government Regulation on the Business.
--------------------------------------------------------------------
Pending completion of certain test routines from Underwriters Laboratories
("UL"), the Company intends to request an approval and official "Universal
Plumbing Code" logo of the International Association of Plumbing and Mechanical
Officials. "UPC" logo indicates that the Company products meet plumbing code
requirements in all fifty states. No assurance can be given that the Company
will receive such approval. Although the Company's products are currently
undergoing UL testing, the results so far have been successful.
The Company has applied for Medicare listing with Medicare's administrator
and expects that listing in the latter part of 2000. This listing enables
people to seek Medicare reimbursement for the purchase of the Company's
products. The Company is also in the process of applying to appear on a library
list of products of the ADA administrator.
Trademarks, Patents, Licensing and Royalty Agreements
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Presently, the Company has no patents or trademarks. The Company is
pursuing domestic and international trademark protection of its Mediclenze and
Theraclenze systems and these applications are currently pending approval. The
Company intends to file one or more patent applications in late spring 2000.
The Company entered into a License Agreement dated August 21, 1997
("Licensing Agreement") with the Company's principal stockholder Charles
Kallmann ("Licensor"). The Licensing Agreement allows the Company to continue
the development, manufacturing and marketing of personal hygiene products. The
Licensing Agreement provides royalty payments to the Licensor equal to 3% of the
gross sales of all Hydrogiene products with minimum royalty payments of $100,000
in year one, $250,000 in year
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two, and $300,000 for each subsequent year. The Licensing Agreement terminates
on August 20, 2022, with an option by the Licensor to renew the Licensing
Agreement for an additional 25 years at the increased royalty rate of four
percent (4%).
Competition
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The Company's systems are similar in function to Europe's bidets without
the additional plumbing and space requirements. However, the Company believes it
is the only manufacturer of the Mediclenze and Theraclenze Systems type products
in the United States market at this time. To the best of the Company's
awareness, 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 products are the only ones which can be added to a
standard toilet, easily by the homeowner, without modifying the fixture itself.
ITEM 7. PROPERTIES
The Company's principal executive offices are located at 12335 World Trade
Drive, Suite 8, San Diego, California 92128 where the Company leases a 4,700
square foot assembly facility. The facility lease is for a term of five (5)
years, ending on January 3, 2004, at a monthly rate of $3,488. Except for
certain leased equipment, the Company owns all of the property and equipment
located in the facility.
ITEM 8. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The following persons have served as or were nominated to serve as
officers, directors or key employees for the Company:
Name Position
---- --------
Charles W. Kallmann Director and
Chief Executive Officer
John Aguero Director and President
Michael Brette Director and Executive
Vice-President
Arden E. Roney Director
George J. Grosek Director
Joseph Cerbone Director
Norman S. Arikawa Director
John Rolls Secretary
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Henry Lloyd Director of Marketing
Charles W. Kallmann has served as Director and Chief Executive Officer of
the Hydrogiene Corporation since the Company's inception in 1995. From 1992 to
1995, Mr. Kallmann was President and Chief Executive Officer of Star of Phoenix
Aircraft Corporation, a manufacturer of training and sports-light aircraft. From
1985 to 1992, Mr. Kallmann resided in Hamburg, Germany, where he served as a
Managing Director of ARK Petroleum Group, GMBH, a bulk petroleum distributor.
Mr. Kallmann attended Riverside Military Academy from 1938 to 1944.
John Aguero was appointed Director and President of the Company on March
29, 2000. Prior to assuming this role, Mr. Aguero was President and Chief
Executive Officer of National Brokers & Distributors and of its predecessor, All
World Wide Products. National Brokers & Distributors is a leading food broker
and distribution company. Mr. Aguero has over 30 years of experience across
numerous industries in executive management, operations, sales, marketing,
merchandising, transportation and distribution.
Michael Brette has served as Vice President and Director of the Company
since 1998. Prior to Mr. Brette's association with the Hydrogiene Corporation,
he served as a Chairman of Capital Asset Management, LLC. Mr. Brette is
President of BST International, a company handling investments in off-shore
mutual funds, banking and trust administration and formations. Mr. Brette is a
Managing Director for Swiss Trade and Commerce Trust Co. Mr. Brette has received
a Bachelor of Science degree in Political Science and Bachelor of Arts degree in
Philosophy from Ohio State University in 1974 and a Juris Doctor degree from
Western State University Law School in 1978.
Arden E. Roney has served as Director of the Company since July, 1998. Mr.
Roney is one of the co-founders of Nu-skin, a multi-level cosmetics marketing
company. During past several years, Mr. Roney was employed as a consultant
capacity to numerous businesses both nationally and internationally. Mr. Roney
received a Bachelor of Business Administration degree in 1950 from the
University of California at Los Angeles and a Master's of Business
Administration/Marketing degree in 1950 from the University of California in Los
Angeles.
George J. Grosek was appointed Director of the Company on March 29, 2000.
Mr. Grosek has been the acting Director of Euro-American Credit & Trade ("EAC")
since its inception of 1992. EAC is a unique specialty financial firm serving
an essential need by providing private capital in the form of equity and debt to
small-cap and micro-cap companies listed on the United States based stock
exchanges. Mr. Grosek's background is in the financial sector, i.e.
international bank credits, capital markets, equities, corporate finance and
commercial lending. Mr. Grosek was educated in Canada, and has been a long time
resident of Southern California. He holds a license issued by the California
Department of Real Estate.
John Rolls was appointed Secretary of the Company in August of 1999. For
the last twenty-four years, Mr. Rolls has been an attorney in private practice
in the areas of business and estate planning, entity formation and civil
practice. In addition, for the last several years, Mr. Rolls has served as a
member of the board of directors and as corporate secretary of various entities,
including
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entities which are shareholders of the Company.
Norman Arikawa was appointed to the board of directors in late February,
2000. Mr. Arikawa is the Chief Accountant with The Port of Los Angeles.
Joseph Cerbone is currently President of the National Capital Companies and
Chairman of Travis Morgan Securities. Mr. Cerbone arranges corporate private
placement financing. He has expertise in the marketing and distribution of
financial products. Mr Cerbone has over 30 years experience in the marketing and
distribution of financial products. Mr. Cerbone has over 30 years experience in
the securities industry, including various management positions with major firms
of the New York Stock Exchange. Mr. Cerbone was recently appointed by the U.S.
Small Business Administration (SBA) to the Region IX Regulatory Fairness Board.
Mr. Cerbone is chairman of the Ethics Committee of the National Association of
Financial Wholesalers, and was formerly on the faculty of the Institute for
International Research. He conducts financial workshops for NASD broker dealers.
Henry Lloyd has served as Vice-President of Corporate Development of the
Company since March 20, 2000. Mr. Lloyd is a senior executive with expertise in
P & L, start-ups, distribution/order fulfillment, MIS services, business
development, operations and strategic planning. For the past 12 years, he
served as the founder and President of DICTUM Distribution Services. The firm
provided order fulfillment services to companies engaged in selling consumer
commodities to wholesalers, distributors and mail order customers throughout the
United States and overseas markets. The firm had 130 employees with five
locations and shipped $150 million in products on 20,000 items to 80,000
customers. Prior positions included Director of Human Resources/Administration
for Werner & Pfeiderer, Manager of Industrial Engineering for Halston Fragrances
& Orlane Inc., and Supervisor for warehousing and distribution, Plant Industrial
Engineer for Aramis, Inc. (a division of Estee Lauder). Mr. Lloyd holds a
Masters Degree in Business Administration from Seton Hall University, and earned
his Bachelor of Science in Industrial Engineering from New Jersey Institute of
Technology.
ITEM 9. REMUNERATION OF DIRECTORS AND OFFICERS
During the fiscal year ended December 31, 1999, the aggregate annual
remuneration of each of the three highest paid persons who are officers or
directors, and all officers and directors as a group, were as follows:
Group Capacities in Aggregate
which Remuneration
remuneration
was received
Three highest paid Officers Pres. & CEO $564,778
and Directors V.P. Communications $423,469
All Officers and Directors as
a Group (8) $988,747
The salary of Mr. Kallmann was $144,000 per year until June of 1999, at
which time the board of directors authorized an increase in his annual salary to
$216,000. In addition, part of Mr. Kallmann's salary in 1999 was paid in stock
instead of cash, resulting in a higher compensation figure as the value of the
stock rose.
ITEM 10. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS
As of December 31, 1999, the three highest paid persons of the Company who
are officers and directors were owners of record of Common Stock as follows:
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Title of Name and Amount % of class
class Address of owned
Owner
Common Charles Kallmann 1,625,646 3%
In addition, Mr. Kallmann is the beneficial owner of or shares the power to
vote or direct the voting of an additional 11,287,709 shares of Common Stock
through his wife, Wiebeke Kallmann, as Trustee of the Revocable Trust dated May
16, 1996.
As of December 31, 1999, the three highest paid persons of the Company who
are officers and directors held options to purchase shares of Common Stock as
follows:
Name of Holder Title and Amount of Exercise Date
Securities Called for Price of
by Options Exercise
Charles Kallmann Common Stock, $0.15 12/31/02
3,000,000 shares
Michael Brette Common Stock, $0.15 12/31/02
3,000,000 shares
Mr. Brette is Executive Vice President and a Director of the Company, but does
not currently receive any compensation, other than the options listed above.
ITEM 11. INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
The Company entered into an Employment Agreement dated August 21, 1997 with
principal stockholder Charles Kallmann. Under the agreement, Mr. Kallmann will
serve as Chief Executive Office of the Company at an annual salary of $144,000,
plus medical coverage, life insurance and the use of two company provided
vehicles. However, the agreement was amended effective on June 14, 1999, to
provide for an increase in Mr. Kallmann's salary to $216,000 annually. The
agreement expires on August 21, 2002. The agreement automatically renews for
succeeding three year terms unless notice of termination is received by either
party prior to the expiration.
The Company entered into a License Agreement dated August 21, 1997
("Licensing Agreement") with Magna IV, Ltd., a Delaware corporation, which Magna
IV subsequently assigned to the Company's principal stockholder Charles Kallmann
("Licensor"). The Licensing Agreement allows the Company to continue the
development, manufacturing and marketing of personal hygiene products. The
Licensing Agreement provides royalty payments to the Licensor equal to 3% of the
gross sales of all Hydrogiene products with minimum royalty payments of $100,000
in year one, $250,000 in year two, and $300,000 for each subsequent year. The
Licensing Agreement terminates
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on August 20, 2022, with an option by the Licensor to renew the Licensing
Agreement for an additional 25 years at the increased royalty rate of four
percent (4%).
The Company has been in discussions with Euro-American Credit & Trade
("EAC"), a company controlled by George J. Grosek, Director, with a view to
enter into an agreement to receive equity capital from EAC. However, the
parties have not finalized a definitive agreement regarding this matter.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
The principal market in which the Common Stock of the Company is sold is
over the counter. The Common Stock is listed on the NASD OTC Bulletin Board
under the symbol "HICS". The reported range of high and low sales prices for
each share of Common Stock for each full quarterly period for the two most
recent fiscal years are as follows:
High Low
---- ---
1st Quarter 1998
2nd Quarter 1998
3rd Quarter 1998
4th Quarter 1998 $2.18 $ 1.75
1st Quarter 1999 $2.00 $ 0.62
2nd Quarter 1999 $1.37 $ 0.18
3rd Quarter 1999 $0.50 $0.125
4th Quarter 1999 $0.22 $ 0.05
The Company's shares were not listed for sale prior to November 1998. The
source of the above data is the NASD wire service as published on Yahoo. Such
over-the-counter market quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
As of March 31, 2000, the approximate number of holders of Common Stock of
the Company is 45,301,385. During the two most recent fiscal years, the Company
did not declare any dividends on the Common Stock. Since the Company is still in
the development stage and requires additional funding for its growth, the
Company does not anticipate declaring dividends in the near future.
During the fiscal year ended December 31, 1999, the Company issued an
aggregate of 2,700,000 shares of Common Stock issued pursuant to Regulation D of
the Securities Act of 1933, as amended.
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During the year 1999, the Company issued 75,000 warrants, at an exercise
price of $0.80 per share, to Seascape Management Company, LLC and its managing
director, Philip Gardner. The estimated fair market value of the warrants was
$39,750, determined on the grant date.
ITEM 2. LEGAL PROCEEDINGS
On August 23rd, 1999, the City of San Diego filed a criminal complaint
against the Hydrogiene Corporation, Charles Kallmann, president of the Company,
and Wiebeke Kallmann, then a director of the Company and the spouse of Charles
Kallmann, for 120 counts of misleading statements regarding the health benefits
of the Company's products and publishing a general announcement of a securities
offering that did not conform to the California Corporations Code. All counts
were misdemeanors. Subsequently, the court dismissed the charges against the
Company and Mrs. Kallmann. The court also accepted Mr. Kallmann's no contest
plea which was pleaded to avoid the additional costs of a trial. Mr. Kallmann
was sentenced to a 3-year probation on the conditions that he violate no laws,
perform community service, pay a $10,000 fine and pay $200 in restitution. The
full amount of the fine has been paid.
There is no current outstanding litigation in which the Company is involved
and the Company is unaware of any pending actions or claims against it.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There have been no matters submitted to vote of the security holders during
the fourth quarter ended December 31, 1999.
ITEM 5. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During the fiscal year ended December 31, 1999, the following persons who
served as a director, officer or beneficial owner of more than ten percent of
any class of equity security of the Company pursuant to Section 12 of the
Exchange Act failed to file on a timely basis reports required by section 16(a)
during the most recent fiscal year or prior years:
Charles Kallmann did not file on a timely basis Form 3, reporting his
beneficial ownership of shares of Common Stock. However, Mr. Kallmann filed a
Form 3 reporting such ownership on March 8, 2000.
Arden Roney did not file on a timely basis Form 3, reporting his beneficial
ownership of shares of Common Stock. However, Mr. Roney filed a Form 3
reporting such ownership on March 8, 2000.
Wiebeke Kallmann, Trustee of the Wiebeke Kallmann Trust U/A dated 5/16/96,
did not file on
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a timely basis Form 3, reporting the beneficial ownership of shares of Common
Stock of the trust. However, the trust filed a Form 3 reporting such ownership
on March 8, 2000.
Karl R. Rolls, Jr. did not file on a timely basis Form 3, reporting his
beneficial ownership of shares of Common Stock. However, Mr. Rolls filed a Form
3 to report such on March 15, 2000.
Michael N. Brette did not file on a timely basis Form 3, reporting his
beneficial ownership of shares of Common Stock. However, Mr. Brette filed a Form
3 to report such ownership on March 15, 2000.
The preceding filings were required when the Company became a reporting
company on December 13, 1999 and the failures to file were inadvertent.
ITEM 6. REPORTS ON 8-K
The Company filed a form 8-K report in the last quarter of fiscal year
1999. The form 8-K reported an Agreement and Plan of Reorganization effective
December 13, 1999 under which Hydrogiene Corporation, a Florida corporation,
acquired all of the outstanding shares of common stock of Decurion Corporation,
a Delaware corporation in a stock exchange. Pursuant to Rule 12g-3(a) of the
General Rules and Regulations of the Securities and Exchange Commission,
Hydrogiene elected to become the successor issuer to Decurion for reporting
purposes. The Company filed a Form 8-K/A on February 25, 2000, amending the
Form 8-K which was filed in December to provide the required financial
statements.
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THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
CONTENTS
--------
PAGE 1 INDEPENDENT AUDITORS' REPORT
PAGE 2 CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999
PAGE 3 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998 AND FOR THE PERIOD FROM DECEMBER
28, 1995 (INCEPTION) TO DECEMBER 31, 1999
PAGES 4 - 6 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
DEFICIENCY FOR THE PERIOD FROM DECEMBER 28, 1995 (INCEPTION)
TO DECEMBER 31, 1999
PAGES 7 - 8 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998 AND FOR THE PERIOD FROM DECEMBER
28, 1995 (INCEPTION) TO DECEMBER 31, 1999
PAGES 9 - 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
The Hydrogiene Corporation
We have audited the accompanying consolidated balance sheet of The Hydrogiene
Corporation and Subsidiaries (a development stage company) as of December 31,
1999 and the related consolidated statements of operations, changes in
stockholders' deficiency and cash flows for the years ended December 31, 1999
and 1998 and for the period from December 28, 1995 (Inception) to December 31,
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly in all material respects, the financial position of The Hydrogiene
Corporation and Subsidiaries (a development stage company) as of December 31,
1999 and the results of its operations and its cash flows for the years ended
December 31, 1999 and 1998 and for the period from December 28, 1995 (Inception)
to December 31, 1999 in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 10 to
the consolidated financial statements, the Company's recurring losses from
operations, working capital deficiency and stockholders' deficiency raise
substantial doubt about its ability to continue as a going concern.
Management's Plan in regards to these matters is also described in Note 10. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
March 25, 2000
F-1
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THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
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ASSETS
------
CURRENT ASSETS
Inventories $ 35,036
Due from officer 12,500
Prepaid expense 13,853
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Total Current Assets 61,389
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PROPERTY & EQUIPMENT - NET 83,657
-----------------
OTHER ASSETS -
-----------------
TOTAL ASSETS $ 145,046
- ------------ =================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
----------------------------------------
CURRENT LIABILITIES
Cash overdraft $ 57,152
Accounts payable 936,595
Payroll tax payable and accrued 84,223
Interest payable 6,411
Loans payable - current 217,241
Obligation under capital lease - current 2,645
-----------------
Total Current Liabilities 1,304,267
-----------------
LONG-TERM LIABILITIES
Loans payable 168,500
-----------------
TOTAL LIABILITIES 1,472,767
-----------------
COMMITMENTS AND CONTINGENCIES (Note 6) -
STOCKHOLDERS' DEFICIENCY
Preferred stock, $.0001 par value, 50,000,000 shares authorized,
none issued and outstanding -
Common stock, $.0001 par value, 250,000,000 shares authorized,
41,992,581 shares issued and outstanding 4,199
Additional paid in capital 9,854,502
Accumulated deficit during development stage (11,095,380)
-----------------
(1,236,679)
Less: stock issued for future services (91,042)
-----------------
Total Stockholders' Deficiency (1,327,721)
-----------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 145,046
- ---------------------------------------------- =================
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
-----------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR FOR THE YEAR FROM DECEMBER 28,
ENDED ENDED 1995 (INCEPTION) TO
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
SALES $ 21,942 $ 8,920 $ 36,696
COST OF SALES 43,792 124,534 205,836
----------------- ----------------- -----------------
GROSS LOSS (21,850) (115,614) (169,140)
----------------- ----------------- -----------------
OPERATING EXPENSES
Officer compensation 988,747 2,287,084 3,355,431
Consulting 3,097,683 892,857 4,199,977
Employee compensation and taxes 273,231 185,799 491,985
Depreciation 18,596 14,459 43,707
Professional fees 231,141 220,161 495,859
Research and development 23,426 36,809 73,190
Royalty expense 912,762 112,583 1,033,632
Advertising 36,993 38,348 197,348
Other selling, general and
administrative 280,094 252,499 717,150
----------------- ----------------- -----------------
Total Operating Expenses 5,862,673 4,040,599 10,608,279
----------------- ----------------- -----------------
LOSS FROM OPERATIONS (5,884,523) (4,156,213) (10,777,419)
----------------- ----------------- -----------------
OTHER INCOME (EXPENSE)
Interest expense (58,710) (16,322) (79,274)
Gain (loss) on abandonment
of leasehold improvements and
equipment 2,839 (1,650) 1,189
Interest income 32 108 220
----------------- ----------------- -----------------
Total Other Income (Expense) (55,839) (17,864) (77,865)
----------------- ----------------- -----------------
LOSS BEFORE EXTRAORDINARY
ITEM (5,940,362) (4,174,077) (10,855,284)
EXTRAORDINARY ITEM
Loss on debt extinguishment (240,096) - (240,096)
----------------- ----------------- -----------------
NET LOSS $ (6,180,458) $ (4,174,077) $ (11,095,380)
- -------- ================= ================= =================
Net loss per share - basic and diluted $ (.33) $ (0.48) $ (1.11)
================= ================= =================
Weighted average number of shares
outstanding during the period - basic
and diluted 18,957,168 8,737,087 9,989,821
================= ================= =================
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE>
THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
<TABLE>
<CAPTION>
STOCK
ACCUMULATED ISSUED
ADDITIONAL DEFICIT DURING FOR
PREFERRED STOCK COMMON STOCK PAID-IN DEVELOPMENT SUBSCRIPTIONS FUTURE
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE RECEIVABLE SERVICE TOTAL
-------- -------- ---------- -------- ---------- -------------- ------------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Founders' stock
issued for cash - $ - 2,179,434 $ 218 $ 802 $ - $ - $ - 1,020
Net loss 1996 - - - - - (71,982) - - (71,982)
-------- -------- ---------- -------- ---------- -------------- ------------- ------- ----------
Balance,
December 31,
1996 - - 2,179,434 218 802 (71,982) - - (70,962)
Founders' stock
issued for cash - - 1,025,616 103 377 - - - 480
Stock issued for
cash - - 112,177 11 102,489 - - - 102,500
Stock issued for
services - - 149,569 15 139,985 - - - 140,000
Net loss 1997 - - - - - (668,863) - - (668,863)
-------- -------- ---------- -------- ---------- -------------- ------------- ------- ----------
Balance,
December 31,
1997 - - 3,466,796 347 243,653 (740,845) - - (496,845)
Stock issued for
cash - - 5,342 1 2,499 - - - 2,500
Stock issued for
services - - 2,942,878 294 2,913,372 - - - 2,913,666
Warrants issued
for services - - - - 29,900 - - - 29,900
Stock issued for
officers accrued
salary - - 339,735 34 158,966 - - - 159,000
Recapitalization:
Stock issued to
High Climbers,
Inc. stock-
Holders - - 2,397,750 239 17,261 - - - 17,500
</TABLE>
F-4
<PAGE>
THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
<TABLE>
<CAPTION>
STOCK
ACCUMULATED ISSUED
ADDITIONAL DEFICIT DURING FOR
PREFERRED STOCK COMMON STOCK PAID-IN DEVELOPMENT SUBSCRIPTIONS FUTURE
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE RECEIVABLE SERVICE TOTAL
-------- -------- --------- -------- ----------- --------------- ------------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulated
deficit of High
Climbers, Inc. - - - - - (17,500) - - (17,500)
Reclassification
of accumulated
deficit - - - - (17,500) 17,500 - - -
Stock issued for
accrued royalty
fee - - 45,000 5 44,995 - - - 45,000
Stock issued in
private place-
ment - - 2,946,000 294 449,706 - (71,800) - 378,200
Stock issued for
services - - 200,000 20 30,520 - - - 30,540
Net loss 1998 - - - - - (4,174,077) - - (4,174,077)
-------- -------- --------- -------- ----------- --------------- ------------- ------- ---------
Balance,
December 31,
1998 - - 12,343,501 1,234 3,873,372 (4,914,922) (71,800) - (1,112,116)
Stock issued for
cash - - 2,700,000 270 306,463 - 71,800 - 378,533
Stock issued for
debt - - 2,033,360 203 422,436 - - - 422,639
Stock issued for
services - - 14,874,054 1,487 2,240,645 - - (91,042) 2,151,090
Stock issued for
Officers
Compensation - - 1,506,666 151 1,042,140 - - - 1,042,291
Common stock
options issued for
services - - - - 870,000 - - - 870,000
</TABLE>
F-5
<PAGE>
THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
<TABLE>
<CAPTION>
STOCK
ACCUMULATED ISSUED
ADDITIONAL DEFICIT DURING FOR
PREFERRED STOCK COMMON STOCK PAID-IN DEVELOPMENT SUBSCRIPTIONS FUTURE
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE RECEIVABLE SERVICE TOTAL
-------- -------- ---------- -------- ----------- --------------- ------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Common stock
options issued for
notes payable - - - - 39,750 - - - 39,750
Recapitalization:
Acquisition of
Decurion
Corporation - - 1,500,000 150 (150) - - - -
Stock issued for
Accrued royalty
Fee - - 6,850,000 685 959,315 - - - 960,000
Stock issued to
Employees - - 185,000 19 100,531 - - - 100,550
Net Loss 1999 - - - - - (6,180,458) - - (6,180,458)
-------- -------- ---------- -------- ----------- --------------- ------------- -------- -----------
BALANCE,
- -------
DECEMBER 31,
-----------
1999 - $ - 41,992,581 $ 4,199 $ 9,854,502 $ (11,095,380) $ - (91,042) $(1,327,721)
- ----- ======== ======== ========== ======== =========== =============== ============= ======= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE FROM DECEMBER 28,
YEAR ENDED YEAR ENDED 1995 (INCEPTION) TO
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- ----------------- -----------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C>
Net loss $ (6,180,458) $ (4,174,077) $ (11,095,380)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 18,596 14,459 43,707
Loss on abandonment of assets (2,839) 1,650 (1,189)
Expenses incurred on issuance of
common stock 5,163,681 3,178,106 8,481,787
Loss on extinguishment of debt 240,096 - 240,096
Changes in operating assets and
liabilities:
Increase (decrease) in:
Accounts receivable 694 (694) -
Prepaid expense (10,863) (2,990) (13,853)
Inventories (35,036) - (35,036)
Cash overdraft 35,647 21,505 57,152
Accounts payable 352,396 370,081 936,595
Payroll taxes payable and accrued 40,014 33,109 84,223
Accrued compensation (79,262) 1,253 -
Interest payable 1,648 13,368 15,653
Accrued royalty fees (63,133) 65,910 -
----------------- ----------------- -----------------
Net cash used in operating activities (518,819) (478,320) (1,286,245)
----------------- ----------------- -----------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and equipment (61,925) (9,369) (85,528)
----------------- ----------------- -----------------
Net cash used in investing activities (61,925) (9,369) (85,528)
----------------- ----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of loans (55,863) (269,200) (325,063)
Payment on capital lease obligations (14,095) (717) (16,991)
Loan proceeds 243,500 416,893 863,094
Due from officer (12,500) - (12,500)
Issuance of common stock 378,533 380,700 863,233
----------------- ----------------- -----------------
Net cash provided by financing
Activities 539,575 527,676 1,371,773
----------------- ----------------- -----------------
NET INCREASE (DECREASE) IN
CASH (41,169) 39,987
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 41,169 1,182 -
----------------- ----------------- -----------------
CASH AND CASH EQUIVALENTS
- -------------------------
AT END OF PERIOD $ - $ 41,169 $ -
- ----------------- ----------------- ----------------- -----------------
</TABLE>
See accompanying notes to consolidated financial statements
F-7
<PAGE>
THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
- -----------------------------------------------------------------------
During 1999, the Company issued 23,415,720 shares of common stock valued at
$4,253,931 to employees, officers, consultants and for royalties in exchange for
services.
During 1999, the Company issued 2,033,360 shares of common stock in settlement
of notes and loans payable plus accrued interest of $422,639 resulting in a loss
on extinguishment of debt of $240,096.
During 1999, the Company returned equipment originally recorded as a capital
lease in settlement of outstanding balance of $3,987.
Cash paid during the year ended December 31:
1999 1998
------ ------
Interest expense $ 58,710 $ 16,322
====== ======
Interest income $ 32 $ 108
====== ======
See accompanying notes to consolidated financial statements
F-8
<PAGE>
THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
- ---------------------------------------------------------------------
(A) Organization
-----------------
On December 28, 1995, Hydrogiene Corporation ("HC-Delaware") was
incorporated in Delaware. The Hydrogiene Corporation ("HC-
California") was incorporated in the State of California on
August 21, 1997.
On September 1, 1997, HC-Delaware, the predecessor, was merged
into HC-California. The merger was treated as a combination of
entities under common control and, accordingly, recorded at
historical cost. The accompanying consolidated financial
statements reflect the operations of both companies for the
periods presented. Concurrent with the merger, HC-Delaware
changed its name to Magna IV, Ltd. and was never dissolved.
Therefore, it remains as an inactive subsidiary.
On October 13, 1998, The Hydrogiene Corporation, ("THC"), a
Nevada corporation, acquired all the net assets of HC-California
by issuing one share of its common stock for each share of HC-
California common stock outstanding. HC-California was never
dissolved and remains as an inactive affiliate.
On October 14, 1998, High Climbers, Inc. ("HCI"), an inactive
Florida shell corporation quoted at that time on the NASD OTCBB,
acquired all of the outstanding stock of THC. The merger
agreement stipulated that HCI issue to the shareholders of THC
2.1367 shares of HCI's common stock for every one share held by
THC's stockholders. As a result of the merger, the shareholders
of THC received 6,754,571 shares and became shareholders of
approximately 72% of HCI. Generally accepted accounting
principles require that the company whose shareholders retain a
majority voting interest in a combined business be treated as the
acquirer for accounting purposes. As a result, the merger was
treated as an acquisition of HCI by THC and as a recapitalization
of THC. Accordingly, the financial statements include the
following: (1) the balance sheet consists of the THC's net assets
at historical cost and HCI's net assets at historical cost and
(2) the statement of operations includes the THC's operations for
the period presented and the operations of HCI from the date of
merger. HCI changed its name to The Hydrogiene Corporation
(hereinafter referred to as "the Company").
Effective December 13, 1999, the Company acquired all the
outstanding shares of common stock of Decurion Corporation
(Decurion), an inactive reporting shell with no assets or
liabilities, from the stockholders thereof in an exchange for an
aggregate of 1,500,000 shares of the Company's common stock.
Pursuant to Rule 12-g-3(a) of the General Rules and Regulations
of the Securities and Exchange Commission, the Company elected to
become the successor issuer to Decurion for reporting purposes
under the Securities Exchange Act of 1934. For financial
reporting purposes, the acquisition was treated as a
recapitalization of the Company with the par value of the common
stock charged to additional-paid-in capital.
F-9
<PAGE>
THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
The Company manufactures and markets a family of personal hygiene
products similar to European cleansing, therapy and sitz bath
systems. The Company currently is in the development stage and
activities to date include fund raising, product design and
development, and establishment of markets.
(B) Principles of Consolidation
--------------------------------
The consolidated financial statements include the accounts of the
Company and its wholly-owned inactive subsidiaries, Magna IV,
Ltd., The Hydrogiene Corporation, a Nevada Corporation, The
Hydrogiene Corporation, a Florida Corporation, Decurion, a
Delaware Corporation and Hydrogiene Corporation de Mexico, S.A.
de C.V. All intercompany balances and transactions have been
eliminated in consolidation. (See Note 11 (F)
(C) Use of Estimates
---------------------
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets
and liabilities at the date of the financial statements and
revenues and expenses during the reported period. Actual results
could differ from those estimates.
(D) Cash and Cash Equivalents
------------------------------
For purposes of the cash flow statements, the Company considers
all highly liquid investments with original maturities of three
months or less at the time of purchase to be cash equivalents.
(E) Inventory
--------------
Inventory is stated at the lower of cost (first-in, first-out) or
net realizable value, and consist of purchased parts and
materials.
(F) Fair Value of Financial Instruments
----------------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments", requires disclosures
of information about the fair value of certain financial
instruments for which it is practicable to estimate the value.
For purposes of this disclosure, the fair value of a financial
instrument is the amount at which the instrument could be
exchanged in a current transaction between willing parties other
than in a forced sale or liquidation.
The carrying amounts of the Company's accounts payable, accrued
liabilities, and loans payable approximates fair value due to the
relatively short period to maturity for these instruments.
F-10
<PAGE>
THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
(G) Stock Options and Warrants
-------------------------------
In accordance with Statement of Financial Accounting Standards
No. 123, ("SFAS 123") the Company has elected to account for
Stock Options and Warrants issued to employees under Accounting
Principles Board Opinion No. 25 ("APB Opinion No. 25") and
related interpretations. The Company accounts for stock options
and warrants issued to non-employees for services under the fair
value method of SFAS 123.
(H) Property and Equipment
---------------------------
Property and equipment are stated at cost and depreciated using
the double-declining balance method over the estimated economic
useful lives of 3 to 7 years. Expenditures for maintenance and
repairs are charged to expense as incurred. Major improvements
are capitalized.
(I) Revenue Recognition and Cost of Goods Sold
-----------------------------------------------
The Company recognizes revenue upon shipment of products. Cost of
goods sold in 1999 and 1998 includes the cost of impaired
inventory disposed of.
(J) Income Taxes
-----------------
The Company accounts for income taxes under the Financial
Accounting Standards Board Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" ("Statement
109"). Under Statement 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
(K) Advertising Costs
----------------------
In accordance with the Accounting Standards Executive Committee
Statement of Position 93-7 ("SOP 93-7"), costs incurred for
producing and communicating advertising of the Company are
charged to operations.
(L) Concentration of Credit Risk
---------------------------------
The Company maintains its cash in bank deposit accounts, which,
at times, may exceed federally insured limits. The Company has
not experienced any losses in such accounts and believes it is
not exposed to any significant credit risk on cash and cash
equivalents.
F-11
<PAGE>
THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
(M) Loss Per Share
-------------------
Basic and diluted net loss per common share for the years ended
December 31, 1999 and 1998 and for the period from December 28,
1995 (inception) to December 31, 1999 is computed based upon the
weighted average common shares outstanding as defined by
Financial Accounting Standards No. 128, "Earnings Per Share". In
accordance with the Securities and Exchange Commission Staff
Accounting Bulletin Topic 4(D), for purposes of computing loss
per share, a nominal issuance of 2,777,641 common shares in 1998
has been treated as outstanding for all reported periods in the
accompanying consolidated financial statements. Common stock
equivalents have not been included in the computation of diluted
loss per share since the effect would be anti-dilutive. At
December 31, 1999 there were 6,395,505 common stock, warrants and
options issued and outstanding that could potentially dilute
earnings per share in future periods.
(N) Business Segments
----------------------
The Company applies Statement of Financial Accounting Standards
No. 131 "Disclosures about Segments of an Enterprise and Related
Information". The Company operates in one segment and therefore
segment information is not presented.
NOTE 2 INVENTORIES
- ---------------------
Inventories at December 31, 1999 consist primarily of raw materials
accounted for on the first-in, first-out method.
NOTE 3 PROPERTY AND EQUIPMENT
- --------------------------------
The following is a summary of property and equipment at December 31,
1999:
Office equipment $ 50,299
Equipment under capital leases 23,623
Automobile 16,012
Computer software 13,607
Furniture and fixtures 13,268
Leasehold improvements 7,718
Less: Accumulated depreciation (40,870)
--------
Property and equipment - net $ 83,657
========
Depreciation expense for the years ended December 31, 1999 and 1998
and for the period from December 28, 1995 (inception) to December 31,
1999 was $18,596, $14,459 and $43,708, respectively.
F-12
<PAGE>
THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
NOTE 4 DUE FROM OFFICER
- --------------------------
During 1999, the Company paid expenses on behalf of an officer. The
amounts are recorded as a due from officer at December 31, 1999 and
are non-interest bearing and due on demand. (See Note 9)
NOTE 5 NOTES AND LOANS PAYABLE
- ---------------------------------
The following schedule reflects notes and loans payable at December
31, 1999:
Note payable, interest at 20.27% per annum,$308 due
monthly until August 2002, secured by an automobile
with a book value of $7,686 $ 7,392
Loan payable, non-interest bearing, due on demand,
unsecured 56,000
Note payable, interest at 12% per annum, due April
13, 1999, unsecured, currently in default. 25,000
Loan payable, non-interest bearing, due on demand,
unsecured 110,798
Loan payable, non-interest bearing, due on demand,
unsecured 1,700
Loan payable, non-interest bearing, due on demand,
unsecured 2,851
Loan payable, non-interest bearing, due on demand,
unsecured 1,000
Loan payable, non-interest bearing, due on demand,
unsecured 12,500
Note payable, interest prime plus 2% per annum,
principal and accrued interest due March 27, 2010 168,500
---------
385,741
Less current portion 217,241
---------
$ 168,500
=========
NOTE 6 COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
(A) Capital Lease Agreements
-----------------------------
Future minimum lease payments under capital leases are as follows at
December 31, 1999:
2000 $ 3,500
Less interest (855)
-------
Total $ 2,645
=======
F-13
<PAGE>
THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
(B) Operating Leases
---------------------
The Company leases corporate office space under an operating lease.
This lease has a remaining term expiring at the end of 2003.
Future minimum lease payments under operating leases are as follows at
December 31, 1999:
2000 $ 34,600
2001 34,600
2002 34,600
2003 34,600
--------
$ 138,400
========
Rent expense under operating leases for the years ended December 31,
1999 and 1998 and for the period from December 28, 1995 (inception) to
December 31, 1999 was $46,161, $27,800, and $87,088 respectively.
(C) Employment Agreements
--------------------------
The Company entered into an employment agreement with a principal
stockholder effective on August 21, 1997. The agreement calls for the
individual to become the Chief Executive Officer of the Company at an
annual salary of $216,000 as amended on June 14, 1999 and expiring on
August 21, 2002. The agreement automatically renews for succeeding
terms of three years each unless notice is received by either party
prior to the expiration. The agreement also calls for medical
coverage, life insurance and the use of two companies provided
vehicles.
The Company entered into an employment agreement with a stockholder
effective August 21, 1997. The agreement calls for the individual to
become the Vice-President of Communications for the Company at an
annual salary of $75,000 expiring on August 20, 2002. The agreement
automatically renews for succeeding terms of three years each unless
notice is received by either party prior to the expiration. The
agreement also calls for medical coverage, life insurance and the use
of one company vehicle. During June 1999, the stockholder resigned her
employment agreement effective immediately.
(D) Consulting Agreements
--------------------------
In 1999, the Company entered into a one-year agreement with a
consultant to provide strategic planning services. The agreement calls
for the consultant to receive 500,000 shares of common stock. The
agreement expires on June 6, 2000. The 500,000 shares were issued in
1999 and valued for financial accounting purposes at $218,500, the
fair market value of the common stock on the grant date. Consulting
expense of $127,458 was recognized in 1999 and $91,042 was deducted
F-14
<PAGE>
THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
from stockholders deficiency at December 31, 1999 to be expense over
the contract life in 2000.
(E) License and Royalty Agreements
-----------------------------------
(i) License Agreement-Related Party
On August 21, 1997, the Company entered into a Licensing
Agreement with its principal stockholder to continue development,
manufacturing and marketing of the principal stockholder's
personal hygiene products. This Agreement calls for a royalty
payment of 3% of gross sales of all Hyrdogiene products. The
Agreement calls for a minimum royalty payment of $100,000 in year
one, $250,000 in year two, and $300,000 for each subsequent year.
The Agreement was effective the first month the Company began
sales to customers, which was December 1997. Royalty expense was
$912,762, $112,583, and $1,033,632 in 1999, 1998, and for the
period from December 28, 1995 (inception) to December 31, 1999,
respectively. (See Note 7(D)). During 1999, the Company issued
6,850,000 common shares valued at the fair market value on the
grant date to settle accrued royalties of $63,133, current
royalty expense of $233,271 and an additional royalty expense of
$684,491 to the principal stockholder at various dates during the
year ended December 31, 1999. (See Note 7(D))
(ii) Royalty Agreements
During 1998 and 1997 the Company entered into other royalty
agreements with various individuals who paid monies to the
Company in exchange for stipulated royalties based on sales
volume. Due to the minimal sales during 1998 and 1997, during
1999 the Company agreed to cancel all the royalty agreements,
consider all amounts paid to the Company as loans, and then
convert certain of these loans to common stock of the Company.
(See Note 7(E))
(F) Indemnification
--------------------
The Board of Directors has authorized the indemnification of its
officers, directors, agents, fiduciaries or employees against any
claim, liability or expense arising against or incurred by such person
acting on behalf of the Company. As of December 31, 1999 and 1998 the
Company had not obtained any insurance policy providing such
indemnification. During 1999 the Company incurred approximately
$17,000 in legal fees on behalf of its Chairman of the Board/CEO. (See
Note 6 (G) (iii))
F-15
<PAGE>
THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
(G) Litigation, Claims, and Assessments
----------------------------------------
(i) Litigation with Creditors
The Company is party to various lawsuits, some of which have been
reduced to judgements. These lawsuits and/or judgements are
reflected in accounts payable as of December 31, 1999.
(ii) Other Significant Claims
The Company is in process of negotiating the settlement of
approximately sixty separate claims, primarily from vendors and
services providers, aggregating approximately $490,900 as of the
date of this report. All amounts relating to 1999, 1998, and 1997
have been expensed and accrued as accounts payable at December
31, 1999, 1998, and 1997, respectively.
(iii) Litigation Relating to Officers and Directors
On August 23, 1999, the City of San Diego filed a criminal
complaint against The Hydrogiene Corporation, it Chief Executive
Officer and director, and another director of the Company, for
120 counts of misleading statements regarding the health benefits
of the Company's products and publishing a general announcement
of a securities offering that did not conform to the California
Corporations Code. All counts were misdemeanors. Subsequently,
the court dismissed the charges against the Company and the other
director and accepted the Chief Executive Officer's no contest
plea. The Chief Executive Officer was sentenced to a 3-year
probation on the condition that he violate no laws, perform
community service and pay a $10,000 fine and $200 in restitution.
Based upon the indemnification discussed in Note 6(G) above, the
Company will incur the cost of the $10,000 fine.
NOTE 7 STOCKHOLDERS' DEFICIENCY
- ----------------------------------
(A) Retroactive Restatement of Capital
---------------------------------------
Pursuant to the mergers, acquisitions and recapitalizations
discussed in Note 1(A), all share quantities, amounts, per share
data, and par value in the accompanying consolidated financial
statements have been retroactive restated.
(B) Common and Preferred Stock
-------------------------------
In 1998 the Company authorized 50,000,000 shares of preferred
stock at $0.0001 par value to be issued in one or more series
with such rights, preferences, and restrictions as determined by
the Board of Directors at the time of authorization of issuance.
At December 31, 1999 there were none issued and outstanding.
F-16
<PAGE>
THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
In March 2000, the Company increased its authorized shares of
common stock from 50,000,000 to 250,000,000. (See Note 11(G))
(C) Stock Issued for Cash
-------------------------
In January 1996 the Company issued 2,179,434 shares of common
stock to its founders for $1,020.
In August 1997 the Company issued 1,025,616 shares of common
stock to its founders for $480.
In December 1997 the Company issued 106,835 shares of common
stock for $100,000, and 5,342 shares for $2,500 in reliance on an
exemption from registration under the Securities Act of 1933, as
amended.
During the period of January to June 1998 the Company issued
another 5,342 shares of common stock for cash of $2,500.
During 1998 the Company issued 2,946,000 shares of common stock
for $450,000 in reliance on a Regulation D, Rule 504 exemption
from registration under the Securities Act of 1933, as amended.
(See Note 7(F))
During 1999, the Company issued 2,700,000 shares of common stock
for $306,733 on reliance on a Regulation D, Rule 504 exemption
from registration under The Securities Act of 1933, as amended.
(D) Stock Issued for Services
-----------------------------
In December 1997 the Company issued 149,569 common shares for
services valued for financial accounting purposes at $140,000
based upon the then recent cash offering price of the material
cash issuance of 106,835 shares discussed in Note 7(C).
During the period from January to September 1998 the Company
issued 2,942,878 common shares for services performed in 1998 to
employees, officers, directors and third parties. The shares were
valued for financial accounting purposes based upon the then most
recent cash offering price of the material cash issuance of
106,835 shares discussed in Note 7(C). Accordingly, compensation
expense of $2,754,666 was recognized.
During the period from January to June 1998 the Company issued
309,821 common shares and in October 1998 issued 29,914 common
shares to officers for $159,000 in accrued salaries. The
difference between the exchange price and the fair market value
based upon the most recent cash offering price of the material
cash issuance of 106,835 shares discussed in Note 7(C)
aggregating $159,000 was recognized as additional compensation
expense at the issuance date.
F-17
<PAGE>
THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
On October 13 and October 14, 1998 the Company recapitalized
through a reincorporation and merger, respectively. (See Note
1(A))
On November 18, 1998 the Company issued 45,000 common shares for
accrued royalty fees due to a related party of $45,000. The
difference between the $1.00 per share price and the $0.1527 per
share recent cash offering price under a private placement (see
Note 7(C)) was recorded as additional paid-in capital.
During the period from October 14, 1998 to December 31, 1998 the
Company issued 200,000 common shares for services performed in
1998 valued for financial accounting purposes at the then recent
cash offering price under a private placement of $0.1527 per
share. Compensation expense of $30,540 was recognized on the
grant date.
During 1999, the Company issued 6,850,000 shares of common stock
valued at the fair market value on the grant date based on the
quoted trading price for accrued and current royalty fees due to
a related party of $960,000. (See Note 6(E)
During 1999, the Company issued 1,506,666 shares of common stock
valued at the fair market value at the grant date based on the
quoted trading price for accrued and current officers salaries of
$1,042,291. (See Note 6(C)
During 1999, the Company issued 185,000 shares of common stock
valued at the fair market value on the grant date based on the
quoted trading price as bonuses recognized as compensation
expense in 1999 of $100,550.
During 1999, the Company issued 14,874,054 shares of common stock
for services performed in 1999 valued at the fair market value on
the grant date based on the quoted trading price. Consulting
expense of $2,242,132 was recognized on the grant date.
On December 3, 1999, the Company acquired Decurion Corporation in
exchange for 1,500,000 shares of common stock. (See Note 1(A))
(E) Stock Issued for Debt
-------------------------
During 1999, the Company issued 2,033,360 shares of common stock
in exchange of notes and loans payable plus accrued interest of
$422,639 resulting in a loss on extinguishment of debt of
$240,096.
(F) Common Stock Warrants
-------------------------
The Company issued 320,505 warrants during 1998, at an exercise
price of $0.25 per share as consideration for assistance with the
$450,000 cash offering. The fair market value of the warrants,
aggregating $ 41,665, was estimated on the grant date using the
Black-Scholes option pricing model as required under SFAS 123
with the following weighted average assumptions: expected
dividend yield 0%, volatility
F-18
<PAGE>
THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
0%, risk-free interest rate 5.0%, expected option life 1 year.
The value of the warrants is a direct offering expense and
accordingly, was charged to equity in 1998.
The Company issued 230,000 warrants during 1998, at an exercise
price of $0.25 per share to a 1998 advertising service provider.
The fair market value of the warrants, aggregating $ 29,900, was
estimated on the grant date using the Black-Scholes option
pricing model as required under SFAS 123 with the following
weighted average assumptions: expected dividend yield 0%,
volatility 0%, risk-free interest rate 5.0%, expected option life
1 year. The $29,900 was charged to 1998 selling, general and
administrative expense at the grant date.
(G) Common Stock Options
------------------------
The Company issued 75,000 options during 1999 at an exercise
price of $.80 per share to various note holders. The options were
valued at $39,750, the fair market value at the grant date. The
amount was recorded as a discount on notes issued and amortized
as interest expense over 90 days, the life of the notes.
The Company issued 3,000,000 options during 1999 at an exercise
price of $.15 per share to a consultant for services preformed in
1999. The fair market value of the options, aggregating $870,000,
was estimated on the grant date using the Black-Scholes option
pricing model as requires under SFAS 123 with the following
weighted average assumptions and expected dividend yield 0%,
volatility 239%, risk-free interest rate of 5%, expected options
life 2 years. The $870,000 was charged to 1999 consulting
expense.
The Company issued 3,000,000 options during 1999 at an exercise
price of $.15 per share to an officer. The Company accounts for
employee stock options in accordance with the intrinsic value
method prescribed in the APB No. 25. Accordingly, no compensation
expense is recognized at the time stock options are granted. Had
employee compensation expense been determined based on the fair
value at the grant date for options granted consistent with SFAS
No. 123, net loss for 1999, 1998 and for the period December 28,
1995 (inception) to December 31, 1999 would have been
$(7,050,458), $(4,174,077) and $(11,965,380), and basic and
diluted, not loss per share would have been $(.37), $(.48) and
$(1.20), respectively. The fair market value of the options was
estimated on the grant date using the Black-Scholes option
pricing model with the following weighted average assumptions:
expected dividend yield 0%, volatility 239%, risk-free interest
rate of 5%, expected option life of 2 years.
NOTE 8 INCOME TAXES
- ----------------------
Income tax expense (benefit) for the years ended December 31,
1999 and 1998 is summarized as follows:
F-19
<PAGE>
THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Current:
Federal $ - $ -
State - -
Deferred-Federal and State 2,353,114 1,192,403
Change in Valuation Allowance (2,353,114) (1,192,403)
--------------- ----------------
Income tax expense (benefit) $ - $ -
=============== ================
The Company's tax expense differs from the "expected" tax expense
for the years ended December 31, 1999 and 1998, as follows:
1999 1998
---- ----
U.S. Federal income tax provision (benefit) $ (2,101,356) $ (1,419,186)
Nondeductible stock based compensation 1,755,652 1,080,556
Effect of net operating loss carryforward 345,704 338,630
------------- ---------------
$ - $ -
============= ===============
The tax effects of temporary differences that gave rise to
significant portions of deferred tax assets and liabilities at
December 31 are as follows:
1999 1998
---- ----
Deferred tax assets:
Net operating loss carryforward $ 888,492 $ 338,630
Stock based compensation 2,883,808 1,080,556
------------- ---------------
Total gross deferred tax assets 3,772,300 1,419,186
Less valuation allowance 3,772,300 1,419,186
------------- ---------------
Net deferred tax assets $ - $ -
============= ===============
</TABLE>
At December 31, 1999, the Company had net operating loss
carryforwards of approximately $2,613,000 for U.S. Federal income
tax purposes available to offset future taxable income expiring
on various dates beginning in 2016 through 2019.
The valuation allowance at January 1, 1999 was $1,419,186. The
net change in the valuation allowance during the year ended
December 31, 1999 was an increase of approximately $2,353,114.
NOTE 9 RELATED PARTIES
- ------------------------------
F-20
<PAGE>
THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
Accrued compensation to officers was exchanged for common stock
(See Note 7).
The Company has a license agreement with its principal
stockholder whereby royalties are paid to that stockholder based
on product sales and stipulated minimum payments (See Note 6
(E)(i)).
Accrued royalty fees to a principal stockholder were exchanged
for common stock (See Notes 6(E)(i) and 7(D)).
The Company has an employment agreement with its principal
stockholder (See Note 6(C).
During 1999 and 1998, the Company paid expenses on behalf of an
affiliate owned by the Chief Executive Officer. These amounts
were charged against loans and accrued salaries due to that
officer and recorded as a due from officer.
The Company indemnifies its officers and directors. (See Note
6(F))
NOTE 10 GOING CONCERN
- ----------------------------
As reflected in the accompanying financial statements, the
Company's recurring losses, working capital deficiency, and
stockholders' deficiency of $6,180,458, $1,312,878 and
$1,327,721, respectively, raise substantial doubt about its
ability to continue as a going concern. The Company has
continuing losses during 2000. The ability of the Company to
continue as a going concern is dependent on the Company's ability
to raise additional capital and implement its business plan. The
financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going
concern.
The Company has continued its product design and development
efforts to increase the marketability of its products. In
addition, the Company has settled various loans payables and
other liabilities during 2000 through the issuance of its common
stock. (See Note 11) The company intends to file a Form SB-2 with
the Securities and Exchange Commission during the year 2000 to
raise additional equity capital. Management believes that actions
presently taken to obtain additional funding provide the
opportunity for the Company to continue as a going concern.
NOTE 11 SUBSEQUENT EVENTS
- --------------------------------
(A) Acquisitions
-----------------
In March 2000, the Company entered into two memoranda of
understandings to acquire the assets of Lifequest, Inc. and
National Brokers and Distributors. The acquisitions are
scheduled to close in April 2000. As of the date of the
accompanying audit report, the acquisition agreements have not
been finalized.
F-21
<PAGE>
THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
(B) Private Placement and Other Stock Issuances
-----------------------------------------------
During the period January 1, 2000 through March 25, 2000, the
Company issued 2,564,000 common shares for consulting services.
The shares were valued at their fair market value aggregating $
4,671,280 for financial reporting purposes based on the quoted
market price of the stock on the grant dates. The value was
charged to consulting expense in 2000 since all services were
performed in that year.
During the period January 1, 2000 through March 25, 2000, the
Company issued 98,199 common shares for debt of $ 213,063. The
shares were valued at their fair market value aggregating $
199,375 for financial reporting purposes based on the quoted
market price of the stock on the grant dates. The Company
recognized a gain on debt extinguishment of $ 13,688 at the
exchange dates.
(C) Consulting Agreements
-------------------------
During January 2000, the Company entered into a 90 day consulting
agreement whereby the Company will be provided investor relation
services. The contract automatically renews for a 90-day period
unless canceled by either party. The agreement also calls for a
monthly payment of $2,500.
During January 2000, the Company entered into a consulting
agreement whereby the Company will be provided representation
before the California State Legislature and related state
agencies. The agreement calls for a monthly payment of $2,500.
The agreement may be terminated with 60 days written notice by
either party.
During January 2000, the Company entered into a product
development and manufacturing agreement with LifeQuest, Inc. The
agreement calls for LifeQuest to develop product formulations for
the Company at a stipulated fee plus future royalties. As of
March 2000, the Company has entered into a memorandum of
understanding to acquire the assets of LifeQuest, Inc. (See Note
11(A)
(D) Subsequent Borrowings
-------------------------
During the period January 1,2000 through March 25, 2000, the
Company borrowed $ 1,942,500 from an individual. The note accrues
interest at prime plus 2% per annum, principal and interest due
March 27, 2010.
(E) Subsequent Operations
-------------------------
The Company has had continuing losses through the date of this
report. (See Note 10)
(F) Subsequent Dissolution
--------------------------
F-22
<PAGE>
THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
-----------------------
The Company dissolved The Hydrogiene Corporation-Nevada, an
inactive subsidiary, during March 2000.
(G) Subsequent Articles of Incorporation Amendment
--------------------------------------------------
On March 24, 2000, the Company changed the number of shares
authorized from 50,000,000 to 250,000,000. (See Note 7(B))
F-23
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
Exhibit 2 - Amended and Restated Articles of Incorporation and By-Laws of
The Hydrogiene Corporation (f/k/a High Climbers, Inc.), is incorporated by
reference from the Company's 8-K/A report filed by the Company on February 25,
2000.
Exhibit 3(i) - Form of Common Stock Purchase Warrants with Seascape
Management Company, LLC, Fern Stotsenberg, Bradley Gardner, Aerial Gardner,
Gregory Gardner and Philip Gardner
Exhibit 3(ii) - Form of Warrant to Purchase Common Stock, with Evergreen
Financial Services, Inc., dated August 25, 1998
Exhibit 6 (i) - License Agreement dated August 21, 1997, as amended on
September 1, 1997.
13
<PAGE>
Exhibit 6(ii) - Hydrogiene Employment Contract dated October 1997 with
Charles Kallmann.
Exhibit 6(iii) - Hydrogiene Stock Option Agreement dated August 11, 1999
with Charles Kallmann.
Exhibit 6(iv) - Hydrogiene Stock Option Agreement dated August 11, 1999
with Michael Brette.
14
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of Exchange Act of 1934, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
The Hydrogiene Corporation
Dated: April 12, 2000 /s/ Charles Kallmann
Charles Kallmann
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<S> <C> <C>
By: /s/ Michael Brette Executive Vice President, Director April 13, 2000
---------------------------
Signature and Title
By: /s/ Charles W. Kallmann Chief Executive Officer, Director April 13, 2000
---------------------------
Signature and Title
By: /s/ John Aguero President, Director April 13, 2000
---------------------------
Signature and Title
By: /s/ Norman Arikawa Director April 13, 2000
---------------------------
Signature and Title
By: /s/ Charles Grosek Director April 13, 2000
---------------------------
Signature and Title
By: ___________________________
Signature and Title
</TABLE>
15
<PAGE>
EXHIBIT 3(i)
THE SECURITIES REPRESENTED BY THIS WARRANT AND ANY SHARES ACQUIRED UPON THE
EXERCISE OF THIS WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION FROM REGISTRATION UNDER
THE ACT. THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE ACT AND THIS WARRANT CANNOT BE EXERCISED UNLESS REGISTERED OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE.
HYDROGIENE CORPORATION
----------------------
COMMON STOCK PURCHASE WARRANT
Warrant No. 003 Warrant to Purchase 25,000
----------
Shares of Common Stock
Issue Date: 22 APRIL 1999 Expires: 22 APRIL 2002
Not Transferable or Exercisable
Except Upon Conditions Herein Specified
THIS CERTIFIES that for value received SEASCAPE MANAGEMENT CO. LLC hereafter
---------------------------
referred to as (the "Holder"), is entitled to subscribe for and purchase from
The Hydrogiene Corporation, a Florida Corporation, hereinafter referred to as
(the "Corporation/M/), 25,000 shares of Common Stock, (the "Common Stock"), of
------
the Corporation (such shares to be subject to adjustment in accordance with
Section 3 hereof hereinafter sometimes called (the "Warrant Shares") at an
exercise price of 80 cents per share)) (the "Exercise Price") at any time or
from time to time during the Exercise Period (as defined in Section 1 hereof).
Section 1. Exercise of Warrant.
------------------------------
(a) The rights represented by this Warrant may be exercised by the Holder
hereof, in whole at any time or in part from time to time during the Exercise
Period, but not as to fractional share of Common Stock, by the surrender of this
Warrant (properly endorsed) at the office of the Corporation, 11717 Bernardo
Plaza Court, Suite 220, San Diego, California 92128 (or at such other agency or
office of the Corporation in the United States of America as it may designate by
notice in writing to the holder hereof at the address of such holder appearing
on the books of the Corporation), and by payment to the Corporation of the
Exercise Price in cash or by certified or official bank check in United States
Dollars for each share being purchased.
(b) In the event of any exercise of the rights represented by this
Warrant, (i) a certificate or certificates for the shares of Common Stock so
purchased, registered in the name of the person entitled to receive the same,
shall be mailed to the holder hereof within a reasonable time, not exceeding
fifteen (15) days, after the rights represented by this Warrant shall have been
so exercised; provided, however, that the Corporation shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate in a name other than that of the
registered holder thereof, and the Corporation shall not be required
1
<PAGE>
to issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Corporation the amount of
such tax or shall have established to the satisfaction of the Corporation that
such tax has been paid; (ii) unless this Warrant has expired, a new Warrant
representing the number of shares (except a remaining fractional share), if any,
with respect to which this Warrant shall not then have been exercised shall also
be issued to the holder hereof within such time. The person in whose name any
certificate for shares of Common Stock is issued upon exercise of this Warrant
shall for all purposes be deemed to have become the holder of record of such
shares on the date on which this Warrant was surrendered and payment of the
Exercise Price was made, irrespective of the date of delivery of such
certificate, except that, if the date of such surrender and payment is a date
when the stock transfer books of the Corporation are closed, such person shall
be deemed to have become the holder of record of such shares at the close of
business on the next succeeding date on which the stock transfer books are open.
The issuance of any shares of Common Stock pursuant to the terms of this Warrant
shall at all times be subject to the requirements of the Act, as amended, and to
the applicable foreign and state securities and blue sky laws then in effect.
(c) As used herein, the following terms shall have the following meanings:
(i) "Closing Price" on any Trading Day shall mean the reported last sales
price of a share of Common Stock, on such Trading Day, or in case no sale takes
place on such Trading Day, the average of the last reported closing bid and
asked prices, in each case on the principal national securities exchange on
which the Common Stock is then listed or admitted to trading or, if the Common
Stock is not then listed or admitted to trading on any national securities
exchange, the highest closing sales price or, if no sale takes place on such
Trading Day, the average of the closing bid and asked prices of a share of
Common Stock in the over-the-counter market as shown on NASDAQ or, if the Common
Stock is not then quoted in such system, as reported on the OTC Bulletin Board
or as published by the National Quotation Bureau, Incorporated or any similar
successor organization, and in either case as reported by any member firm of the
New York Stock Exchange selected by the Corporation.
(ii) "Exercise Period" shall mean the period beginning on the date hereof
and ending on the close of business on ((DATE)), subject to earlier termination
in accordance with the following provisions.
(iii) "Trading Day" shall mean any day on which the principal national
securities exchange or over-the-counter market in which the Common Stock is
traded is open for business and in which there is no restriction on trading
in the Common Stock.
Section 2. Covenants as to Common Stock. The Corporation covenants and agrees
that all shares of Common Stock which may be issued upon the exercise of the
rights represented by this Warrant will, upon issuance, be validly issued, fully
paid and non-assessable, and free from all taxes, liens and charges with respect
to the issue thereof without limiting the generality of the foregoing, the
Corporation covenants that it will from time to time take all actions as may be
requisite to assure that the stated or par value, if any, of the Common Stock is
at all times equal to or less than the then exercise price per share of Common
Stock issuable upon exercise of this Warrant.
2
<PAGE>
The Corporation further covenants and agrees that the Corporation will at all
times have authorized and reserved, free from preemptive rights, a sufficient
number of shares of its Common Stock to provide for the exercise of the rights
represented by this Warrant. The Corporation further covenants and agrees that
if any shares of Common Stock to be reserved for the purpose of the issuance of
shares upon the exercise of this Warrant require registration with or approval
of any governmental authority under any Federal or State law before such shares
may be validly issued or delivered upon exercise, then, the Corporation will in
good faith and as expeditiously as possible endeavor to secure such registration
or approval, as the case may be. If and so long as the Common Stock issuable
upon the exercise of this Warrant is listed on any national securities exchange,
the Corporation will, if permitted by the rules of such exchange, list and keep
listed on such exchange, upon official notice of issuance, all shares of such
Common Stock issuable upon exercise of this Warrant.
Section 3. Adjustment of Warrant Shares.
(a) If at any time the Corporation shall (i) take a record of the
holders of Common Stock for the purpose of entitling them to receive a dividend
payable in, or other distribution of, additional shares of Common Stock, (ii)
subdivide the outstanding shares of Common Stock into a larger number of shares
of Common Stock, or (iii) combine the outstanding shares of Common Stock into a
smaller number of shares of Common Stock, then the Exercise Price shall be
adjusted to equal the product of the Exercise Price in effect immediately prior
to the event giving rise to the adjustment multiplied by a fraction the
numerator of which is equal to the number of shares of Common Stock outstanding
immediately prior to the event giving rise to the adjustment and the denominator
of which is equal to the number of shares of Common Stock outstanding
immediately after such event Upon any such adjustment of the Exercise Price, the
holder hereof shall thereafter be entitled to purchase upon the exercise of this
Warrant, at the Exercise Price resulting from such adjustment, the number of
shares of Common Stock (calculated to the nearest 1/100th of a share) obtained
by multiplying the Exercise Price in effect immediately prior to such adjustment
by the number of shares of Common Stock issuable on the exercise hereof
immediately prior to such adjustment and dividing the product thereof by the
Exercise Price resulting from such adjustment. No adjustment in the Exercise
Price shall be required to be made unless such adjustment would require an
increase or decrease of at least $0.10 (cents), provided, however, that any
adjustments which by reason of this section are not required to be made shall be
carried forward and taken into account in any subsequent adjustment.
(b) Anything contained herein to the contrary notwithstanding, in
case, at any time after the date hereof, of any capital reorganization or any
reclassification of the stock of the Corporation (other than a change in par
value or from par value to no par value or from no par value to par value or as
a result of a stock dividend or subdivision, split-up or combination of shares),
or the consolidation or merger of the Corporation with or into another
corporation (other than a consolidation or merger in which the Corporation is
the continuing corporation and which does not result in any change in the Common
Stock), or any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a third
corporation into the Corporation), or the sale or disposition of all or
substantially all of the properties and assets of the Corporation
3
<PAGE>
to another corporation, in which holders of Common Stock shall be entitled to
receive cash, stock, securities or other property with respect to or exchange
for Common Stock, then, as a condition of such reorganization, reclassification,
consolidation, merger, exchange, sale or other disposition, the Corporation or
the successor or purchaser, as the case may be, shall make lawful and adequate
provision so that this Warrant shall thereafter be exercisable for, and upon
securities or other property which the holder of the number of shares of Common
Stock deliverable (immediately prior to the time of such reorganization,
reclassification, consolidation, merger, in exchange, sale or other disposition)
upon exercise of this Warrant would have been entitled to receive upon or as a
result of such reorganization, reclassification, consolidation, merger, sale or
other disposition. The provisions of this Section 3(b) shall similarly apply to
successive reorganizations, reclassification, consolidations, mergers,
exchanges, sales or other dispositions.
(c) Whenever the number of Warrant Shares shall be adjusted as provided in
Section 3(a) above, the Corporation shall forthwith file, at the office of the
transfer agent for the Common Stock or at such other place as may be designated
by the Corporation, a statement, signed by its chief financial officer, showing
in reasonable detail the facts requiring such adjustment and the number of
Warrant Shares that shall be in effect after such adjustment. Upon request by
the holder of this Warrant, the Corporation shall also cause a copy of such
statement to be sent by first-class, certified mail, return receipt requested,
postage prepaid, to the holder of this Warrant at such holder's address
appearing on the Corporation's records, and, if not so previously mailed, shall
provide a copy of such statement to the holder hereof at the time of exercise.
Section 4. No Stockholder Rights. This Warrant shall not entitle the holder
---------------------
hereof to any voting or other rights as a stockholder of the Corporation.
Section 5. Transfer Restriction Legend. Each certificate representing shares
---------------------------
initially issued upon exercise of this Warrant (and subsequently issued if
appropriate), unless at the time of exercise such shares are registered under
the Securities Act, shall bear the following legend (and any additional legend
required by applicable securities laws or any securities exchange or NASDAQ at
the time of such exercise) on the face thereof:
"The securities represented by this certificate have not been registered under
the Securities Act of 1933, as amended, or the securities laws of any state and
may not be sold, transferred, hypothecated or otherwise assigned except pursuant
to a registration statement with respect to such securities which is effective
under such act and under any applicable state securities laws unless, in the
opinion of counsel reasonably satisfactory to the Company, an exemption from the
registration requirements of such act and state securities laws is available.
Any certificate issued at any time upon transfer of, or in exchange for or
replacement of, any certificate bearing such legend (except a new certificate
issued upon completion of a public distribution of the securities represented
thereby pursuant to a registration under the Securities Act) shall also bear
such legend unless, in the opinion of counsel for the registered holder thereof
reasonably acceptable to the Company, the shares represented thereby need no
longer be subject to the restrictions in this Section. The provisions of this
Section 5. shall be binding upon all subsequent holders of certificates bearing
the above legend, and shall also be applicable to all subsequent holders of this
Warrant.
4
<PAGE>
The Corporation will be able to issue the shares of Common Stock upon
exercise of the Warrant underlying the Warrants Shares only if there is a then
current Private Placement Memorandum or registration statement available for
and distributed to the warrant holders relating to such Common Stock, and only
if such Warrant and Common Stock is qualified for sale or exempt from
registration and qualification under applicable federal securities laws and
state securities laws of the jurisdiction in which various holders of the
Warrants reside. The Corporation reserves the right in its sole discretion to
determine not to apply for exemptions or to register such Common Stock in any
jurisdiction where the time and expense do not justify such exemption filing or
registration. The Warrants may be deprived of any value in the event the
Corporation does not satisfy or the Corporation chooses not to satisfy any such
requirements. Although it is the present intention of the Corporation to satisfy
such requirements, there can be no assurance that the Corporation will be able
to do so, provided, however, that the Corporation will not be permitted to
accelerate the termination of the Exercise Period of these Warrants unless such
acceleration is accomplished in full compliance with hereof Section 1(c) (ii).
The holder of the Warrant agrees and acknowledges that the Warrant is being
purchased for his own account, for investment purposes only, and not for the
account of any other person, and not with a view to distribution, assignment or
resale to others or to fractionalization in whole or in part, and the holder
further represents, warrants and agrees as follows: no other person has or will
have a direct or indirect beneficial interest in this Warrant and the holder
will not sell, hypothecate or otherwise transfer his Warrant except in
accordance with the Act, as amended and applicable state securities laws or
unless, in the opinion of counsel for the holder acceptable to the Corporation,
an exemption from the registration under the Act and such laws is available.
Section 6. Transfer of Warrant. Subject to Section 5 hereof, this
-------------------
Warrant and all rights hereunder are transferable in whole (or in part), at the
office or agency of the Corporation referred to in Section 1 hereof by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant properly endorsed. Each taker and holder of this Warrant, by taking or
holding the same, consents and agrees that this Warrant, when endorsed, in
blank, shall be deemed negotiable, and, when so endorsed the holder hereof may
be treated by the Corporation and all other persons dealing with this Warrant as
the absolute owner hereof for all purposes and as the person entitled to
exercise the rights represented by this Warrant, or to the transfer hereof on
the books of the Corporation, any notice to the contrary notwithstanding; but
until each transfer on such books, the Corporation may treat the registered
holder hereof as the owner hereof for all purposes.
Section 7. Elimination of Fractional Interests. The Corporation shall not
-----------------------------------
be required to issue stock certificates representing fractions of shares of
Common Stock, nor shall it be required to pay cash in lieu of fractional
interests, it being the intent of the parties that all fractional interests
shall be eliminated.
Section 8. Exchange of Warrant. This Warrant is exchangeable, upon the
-------------------
surrender hereof by the holder hereof at the office or agency of the Corporation
designated in Section I hereof, for a new Warrant of like tenor representing the
right to subscribe for and purchase the number of Warrant Shares which may be
subscribed for and purchased hereunder.
5
<PAGE>
Section 9. Notices to Warrant Holders. Nothing contained in this Warrant
--------------------------
shall be construed as conferring upon the holder hereof the right to vote or to
consent to or receive notice as a shareholder in respect of any meetings of
shareholders for the election of Directors or any other matter, or as having any
rights whatsoever as a shareholder of the Corporation. If, however, at any time
prior to the expiration of the Warrant and prior to its exercise, any of the
following events shall occur:
(a) The Corporation shall offer to all of the holders of its Common Stock
any additional shares of stock of the Corporation or securities convertible
into or exchangeable for shares of stock of the Corporation, or any option,
right or warrant to subscribe therefor, or
(b) A dissolution, liquidation or winding up of the Corporation (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety
(whether by merger, consolidation or sale of assets) shall be proposed;
Then, in any one or more of the above said events, the Corporation shall give
written notice of such events at least fifteen (15) days prior to the date fixed
as a record date or the date of closing the transfer books for the determination
of the shareholders entitled to such convertible or exchangeable securities or
subscription rights, or entitled to vote on such proposed dissolution,
liquidation, winding up or sale. Such notice shall specify such record date or
the date of closing the transfer books, as the case may be. Failure to give such
notice or any defect therein shall not affect the validity of any action taken
in connection with the issuance of any convertible or exchangeable securities,
or subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
Section 10. Lost, Stolen, Mutilated, Destroyed Warrant. Upon surrender by the
------------------------------------------
holder of this Warrant to the Corporation, the Corporation at its expense will
issue in exchange therefor, and deliver to such holder, a new Warrant. Upon
receipt of evidence satisfactory to the Corporation of the loss, theft,
destruction or mutilation of this Warrant, and in the case of any such loss,
theft, or destruction, upon delivery by such holder of an indemnity agreement
or security satisfactory to the Corporation, and in case of any such mutilation,
upon surrender and cancellation of this Warrant, the Corporation, upon
reimbursement of all reasonable expenses incident thereto, will issue and
deliver to such holder a new Warrant of like tenor, in lieu of such lost,
stolen, destroyed or mutilated Warrant. Any Warrant delivered to such holder in
accordance with this Section 10 shall bear the same securities legends as the
Warrant which it replaced.
Section 11. Governing Law. This Warrant shall be governed by, and construed in
-------------
accordance with, the laws of the State of Florida applicable to contracts made
therein.
6
<PAGE>
Section 12. Notices. All notices, requests, consents and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or sent by registered or certified mail, return receipt requested:
(a) If to the registered holder of this Warrant, to the address
of such holder as shown on the books of the Corporation; or
(b) To the Corporation, at 1717 Bernardo Plaza Court, Suite 220,
San Diego, California 92128.
Section 13. Successors. All the covenants, agreements, representations and
----------
warranties contained in this Warrant shall bind the parties hereto and their
respective heirs, executors, administrators, distributees, successors and
assigns.
Section 14. Headings. The Article and Section headings in this Warrant are
--------
inserted for purposes of convenience only and shall have no substantive effect.
IN WITNESS THEREOF, the Corporation has caused this Warrant to be executed
by its duly authorized officers as of the date first above written.
The Hydrogiene Corporation
A Florida Corporation
By: Charles W. Kallmann Its: President
/s/ Charles Kallmann
7
<PAGE>
FORM OF ASSIGNMENT
[To be signed only upon transfer of a Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
________________ all of the rights represented by the within Warrant to purchase
________________ shares of the Common Stock of The Hydrogiene Corporation to
which the within Warrant relates, and appoints Attorney to transfer such rights
on the books of The Hydrogiene Corporation with full power of substitution in
the premises.
Dated: /s/ [ILLEGIBLE]
(Signature)
(Address)
Signed in the presence of.
8
<PAGE>
EXHIBIT 3(ii)
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE HEREOF
HAVE BEEN ISSUED AND SOLD WITHOUT REGISTRATION IN RELIANCE UPON EXEMPTIONS FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933 (THE "1933 ACT"). SUCH SECURITIES
MAY NOT BE OFFERED FOR SALE, SOLD, OR TRANSFERRED OTHER THAN (i) PURSUANT TO AN
EFFECTIVE REGISTRATION OR AN EXEMPTION THEREFROM UNDER THE 1933 ACT AND THE
APPLICABLE SECURITIES LAW OF THE STATE OF NEVADA AND (ii) UPON RECEIPT BY THE
ISSUER OF EVIDENCE SATISFACTORY TO IT OF COMPLIANCE WITH THE 1933 ACT, THE
APPLICABLE SECURITIES LAWS OF THE STATE OF NEVADA, OR THE APPLICABLE SECURITIES
LAWS OF ANY OTHER JURISDICTION. THE ISSUER SHALL BE ENTITLED TO REQUIRE AN
OPINION OF COUNSEL SATISFACTORY TO IT WITH RESPECT TO COMPLIANCE WITH THE ABOVE
LAWS.
WARRANT TO PURCHASE 100,000 SHARES OF
COMMON STOCK
OF
HYDROGIENE CORPORATION
(a Nevada Corporation)
Not Transferable or Exercisable Except
upon Conditions Herein Specified
Void after 5:00 O'Clock p.m.,
Las Vegas, Nevada Time, on December 31, 2001
HYDROGIENE CORPORATION, a Nevada corporation (the "Company"), hereby
certifies that EVERGREEN FINANCIAL SERVICES, INC., a corporation organized under
the laws of the State of Georgia, its registered successors and permitted
assigns registered on the books of the Company maintained for such purposes as
the registered holder hereof (the "Holder"), for value received, is entitled to
purchase from the Company the number of fully paid and nonassessable shares of
common stock of the Company (the "Common Stock"), stated above (the "Shares") at
the purchase price of $.25 per Share (the "Exercise Price") (the number of
Shares and Exercise Price being subject to adjustment as hereinafter provided)
upon the terms and conditions herein provided.
1. Exercise of Warrant.
(a) Subject to subsection (b) of this Section 1, upon presentation
and surrender of this Warrant Certificate, with the attached Purchase Form duly
executed, at the principal office of the Company at 16955 Via Del Campo, Suite
230, San Diego, California or at such other place as the Company may designate
by notice to the Holder hereof, together with a certified or bank cashier's
check payable to the order of the Company in the amount of the Exercise Price
times the number of Shares being purchased, the Company shall deliver to the
Holder hereof, as promptly as practicable, certificates representing the Shares
being purchased.
<PAGE>
This Warrant may be exercised in whole or in part; and, in case of exercise
hereof in part only, the Company, upon surrender hereof, will deliver to the
Holder a new Warrant Certificate or Warrant Certificates of like tenor entitling
the Holder to purchase the number of Shares as to which this Warrant has not
been exercised.
(b) This Warrant may be exercised in whole or in part at any time
prior to 5:00 o'clock p.m., Las Vegas, Nevada time, on December 31, 2001.
2. Exchange and Transfer of Warrant. This Warrant Certificate (a) at any
time prior to the exercise hereof, upon presentation and surrender to the
Company, may be exchanged, alone or with other Warrant Certificates of like
tenor registered in the name of the Holder, for another Warrant Certificate or
Warrant Certificates of like tenor in the name of such Holder exercisable for
the same aggregate number of Shares as the Warrant Certificate or Warrant
Certificates surrendered, (b) may not be sold, transferred, hypothecated or
assigned, in whole or in part, before June 1, 1998, and (c) may not be sold,
transferred, hypothecated or assigned, in whole or in part, after June 1, 1998
without the prior written consent of the Company, which consent shall not be
unreasonably withheld.
3. Rights and Obligations of Warrant Holder.
(a) The Holder of this Warrant Certificate shall not, by virtue
hereof, be entitled to any rights of a shareholder in the Company, either at law
or in equity; provided, however, in the event that any certificate representing
the Shares is issued to the Holder hereof upon exercise of this Warrant, such
Holder shall, for all purposes, be deemed to have become the holder of record of
such Shares on the date on which this Warrant Certificate, together with a duly
executed Purchase Form, was surrendered and payment of the Exercise Price was
made, irrespective of the date of delivery of such Share certificate. The rights
of the Holder of this Warrant are limited to those expressed herein and the
Holder of this Warrant, by its acceptance hereof, consents to and agrees to be
bound by and to comply with all the provisions of this Warrant Certificate,
including, without limitation, all the obligations imposed upon the Holder
hereof by Sections 2 and 5 hereof. In addition, the Holder of this Warrant
Certificate, by accepting the same, agrees that the Company may deem and treat
the person in whose name this Warrant Certificate is registered on the books of
the Company maintained for such purpose as the absolute, true and lawful owner
for all purposes whatsoever, notwithstanding any notation of ownership or other
writing hereon, and the Company shall not be affected by any notice to the
contrary.
<PAGE>
(b) The Holder of this Warrant Certificate, as such, shall not be
entitled to vote or receive dividends or to be deemed the holder of Shares for
any purpose, nor shall anything contained in this Warrant Certificate be
construed to confer upon the Holder of this Warrant Certificate, as such, any of
the rights of a shareholder of the Company including but not limited to any
right to vote, give or withhold consent to any action by the Company, whether
upon any recapitalization, issue of stock, reclassification of stock,
consolidation, merger, share exchange, conveyance or otherwise, receive notice
of meetings or other action affecting shareholders (except for the notices
provided for herein), receive dividends, receive subscription rights, or any
other right, until this Warrant shall have been exercised and the Shares
purchasable upon the exercise hereof shall have become deliverable as provided
herein; provided, however, that any such exercise on any date when the stock
transfer books of the Company shall be closed shall constitute the person or
persons in whose name or names the certificate or certificates for those Shares
are to be issued as the record holder or holders thereof for all purposes at the
opening of business on the next succeeding day on which such stock transfer
books are open, and the warrant surrendered shall not be deemed to have been
exercised, in whole or in part as the case may be, until the next succeeding day
on which stock transfer books are open for the purpose of determining
entitlement to dividends on the Company's common stock.
4. Shares Underlying Warrant. The Company covenants and agrees that all
Shares delivered upon exercise of this Warrant shall, upon delivery and payment
therefor, be duly and validly authorized and issued, fully paid and
nonassessable, and free from all liens and charges with respect to the purchase
thereof.
5. Disposition of Warrants of Shares
(a) The Holder of this Warrant Certificate and any transferee hereof
or of the Shares issuable upon the exercise of this Warrant, by their acceptance
hereof or thereof, hereby understand and agree that this Warrant, and the Shares
issuable upon the exercise hereof, have not been registered under either the
Securities Act of 1933 (the "1933 Act") or applicable state securities laws (the
"State Acts") and shall not be sold, pledged, hypothecated, donated or otherwise
transferred (whether or not for consideration) except upon the issuance to the
Company of a favorable opinion of counsel or submission to the Company of such
evidence as may be satisfactory to counsel to the Company, in each such case, to
the effect that any such transfer shall not be in violation of the Act and the
State Acts. It shall be a condition to the transfer of this Warrant that any
transferee hereof deliver to the Company its written agreement to accept and be
bound by all of the terms and conditions of this Warrant Certificate.
<PAGE>
(b) The stock certificates of the Company that will evidence the
Shares issuable upon the exercise hereof may be imprinted with a conspicuous
legend in substantially the following form:
The securities represented by this certificate have not been
registered under either the Securities Act of 1933 (the "Act") or
applicable state securities laws (the "State Acts") and shall not be sold,
pledged, hypothecated, donated or otherwise transferred (whether or not for
consideration) by the holder except upon the issuance to the Company of a
favorable opinion of its counsel or submission to the Company of such other
evidence as may be satisfactory to counsel to the Company, in each such
case, to the effect that any such transfer shall not be in violation of the
Act and the State Acts.
The Company does not file, and does not in the foreseeable future contemplate
filing, periodic reports with the Securities and Exchange Commission ("SEC")
pursuant to the provisions of the Securities Exchange Act of 1934, as amended.
Except as provided in Section 8 of this Warrant, the Company has not agreed to
register any of the Shares issuable upon the exercise hereof for distribution in
accordance with the provisions of the Act or the State Acts, and the Company has
not agreed to comply with any exemption from registration under the Act or the
State Acts for the resale of such Shares. Hence, it is the understanding of the
Holder of this Warrant that by virtue of the provisions of certain rules
respecting "restricted securities" promulgated by the SEC, the Shares issuable
upon the exercise hereof may be required to be held indefinitely, unless and
until registered under the Act and the State Acts, unless an exemption from such
registration is available, in which case the Holder may still be limited as to
the number of such Shares that may be sold.
6. Adjustments. The number of Shares purchasable upon the exercise of this
Warrant is subject to adjustment from time to time upon the occurrence of any of
the events enumerated below.
(a) In case the Company shall: (i) pay a dividend in shares of Common
Stock, (ii) subdivide its outstanding shares of Common Stock into a greater
number of shares of Common Stock, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock, or (iv) issue, by
reclassification of its shares of Common Stock, any shares of its capital stock,
the amount of Shares purchasable upon the exercise of this Warrant immediately
prior thereto shall be adjusted so that the Holder shall be entitled to receive
upon exercise of this Warrant that number of Shares which such Holder would have
owned or
<PAGE>
would have been entitled to receive after the happening of such event had such
Holder exercised this Warrant immediately prior to the record date, in the case
of any such dividend, or the effective date, in the case of any such
subdivision, combination or reclassification. An adjustment made pursuant to
this subsection (a) shall be made whenever any of such events shall occur, but
shall become effective retroactively after such record date or such effective
date, as the case may be, as to any portion of this Warrant exercised between
such record date or effective date and the date of happening of any such event.
(b) In case the Company shall issue rights or warrants to all holders
of its shares of Common Stock entitling them to subscribe for or to purchase
shares of Common Stock at a price per share which, when added to the amount of
consideration received or receivable by the Company for such rights or warrants,
is less than the Current Market Price (as hereinafter defined) per share at the
record date, the number of Shares purchasable upon the exercise of this Warrant
shall be adjusted so that thereafter, until further adjusted, this Warrant shall
entitle the Holder to purchase that number of Shares determined by multiplying
the number of Shares purchasable hereunder by a fraction, the numerator of which
shall be the number of additional shares of Common Stock issuable upon the
exercise of such rights or warrants, and the denominator of which shall be the
number of Shares which an amount equal to the sum of (i) the aggregate exercise
price of the total number of shares of Common Stock issuable upon the exercise
of such rights or warrants, and (ii) the aggregate amount of consideration, if
any, received, or receivable by the Company for such rights or warrants, would
purchase at such Current Market Price. Such adjustment shall be made whenever
such rights or warrants are issued, but shall also be effective retroactively as
to Warrants exercised between the record date for the determination of
shareholders entitled to receive such rights or warrants and the date such
rights or warrants are issued.
(c) For the purpose of any computation under subsection (b) above,
the Current Market Price per share of Common Stock at any date shall be (i) if
the shares of Common Stock are listed on any national securities exchange, the
average of the daily closing prices for the 15 consecutive business days
commencing 20 business days before the date of determination (the "Trading
Period"); (ii) if the shares of Common Stock are not listed on any national
securities exchange but are quoted or reported on the National Association of
Securities Dealers, Inc., Automated Quotation System ("NASDAQ"), the last quoted
price or, if not quoted, the average of the high bid and low asked price as
reported by NASDAQ for the Trading Period, or the daily closing prices for the
Trading Period as reported by NASDAQ, as the case may be; and (iii) if the
shares of Common Stock are neither listed on any national securities
<PAGE>
exchange nor quoted or reported on NASDAQ, the higher of (x) the Exercise Price
then in effect, or (y) the tangible book value per share of Common Stock as of
the end of the Company's immediately preceding fiscal year.
(d) No adjustment shall be required unless such adjustment would
require an increase or decrease of at least 1 percent in the number of Shares
purchasable hereunder; provided, however, that any adjustments which by reason
of this subsection (d) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section 6 shall be made to the nearest one-hundredth of a Share.
(e) No adjustment shall be made in any of the following cases:
(i) Upon the grant or exercise of stock options now or
hereunder granted, or the issuance of shares of Common Stock, under any employee
stock option or stock purchase plan now or hereafter authorized, to the extent
that the aggregate number of shares of Common Stock which may be purchased
pursuant to such options and issued under such employee stock purchase plan is
less than or equal to 10 percent of the number of shares of Common Stock
outstanding on January 1 of the year of the grant or exercise;
(ii) Issuance of shares of Common Stock upon the conversion
of any of the Company's convertible or exchangeable securities;
(iii) Issuance of shares of Common Stock in connection with
the acquisition by the Company or by any subsidiary of the Company of 80 percent
or more of the assets of another corporation or entity, issuance of shares of
Common Stock in connection with the acquisition by the Company or by any
subsidiary of the Company of 80 percent or more of the voting shares of another
corporation (including shares of Common Stock issued in connection with such
acquisition of voting shares of such other corporation subsequent to the
acquisition of an aggregate of 80 percent of such voting shares), issuance of
shares of Common Stock in a merger of or share exchange by the Company or a
subsidiary of the Company with another corporation in which the Company or the
Company's subsidiary is the surviving or acquiring corporation, and issuance of
shares of Common Stock upon the conversion of other securities issued in
connection with any such acquisition or in any such merger or share exchange;
and
(iv) Issuance of shares of Common Stock issued pursuant to
this Warrant and pursuant to all stock options and warrants outstanding on the
date hereof.
<PAGE>
(f) Whenever the number of Shares purchasable hereunder is adjusted as
herein provided, the Company shall cause to be mailed to the Holder in
accordance with the provisions of this Section 6 a notice (i) stating that the
number of Shares purchasable upon exercise of this Warrant have been adjusted,
(ii) setting forth the adjusted number of Shares purchasable upon the exercise
of this Warrant, and (iii) showing in reasonable detail the computations and
the facts, including the amount of consideration received or deemed to have been
received by the Company, upon which such adjustments are based.
7. Fractional Shares. The Company shall not be required to issue any
fraction of a Share upon the exercise of this Warrant or any portion hereof. if
more than one Warrant Certificate (each such Warrant Certificate representing a
portion of this Warrant) shall be surrendered for exercise at one time by the
same Holder, the number of full Shares which shall be issuable upon exercise
thereof shall be computed on the basis of the aggregate number of Shares
represented by the Warrant certificates surrendered. If any fractional interest
in a Share shall be deliverable upon the exercise of this Warrant, the Company
shall make an adjustment therefor in cash equal to such fraction multiplied by
the Current Market Price of the Shares on the business day next preceding the
day of exercise.
8. Registration Rights.
(a) (i) If the Company at any time elects or proposes to register
any of its shares of Common Stock (the "Registration Shares") under the 1933 Act
on Forms S-1, S-2, S-3, or any other Form for the registration of securities to
be sold for cash in effect at such time (a "Registration Statement") with the
Securities and Exchange Commission (the "SEC") pursuant to which shares of
Common Stock owned by any shareholder of the Company may be registered, the
Company shall give prompt written notice (the "Registration Notice") to the
Holder of its intention to register the Registration Shares.
(ii) Within 15 days after the Registration Notice shall have
been given to the Holder, the Holder may give written notice to the Company (the
"Holder Notice"), accompanied by this Warrant Certificate together with a duly
executed Purchase Form and payment of the Exercise Price for the Shares in
accordance with Section I hereof, stating the number of Shares to be registered
and any states in which the Holder wishes to register the Shares.
(iii) The Company shall use reasonable efforts to register the
Shares under the 1933 Act and the State Acts designated by the Holder in the
Holder Notice. The Company shall
<PAGE>
have the right to withdraw and discontinue registration of the Shares at any
time prior to the effective date of such Registration Statement if the
registration of the Registration Shares is withdrawn or discontinued.
(iv) The Company shall not be required to include any of the
Shares in any Registration Statement unless the Holder agrees, if so requested
by the Company, to: (A) offer and sell the Holder Shares to or through an
underwriter selected by the Company and, to the extent possible, on
substantially the same terms and conditions under which the Registration Shares
are to be offered and sold; (B) comply with any arrangements, terms and
conditions with respect to the offer and sale of the Shares to which the Company
may be required to agree; and (C) enter into any underwriting agreement
containing customary terms and conditions, including provisions for the
indemnification of the underwriters.
(b) If the offering of the Registration Shares by the Company is, in
whole or in part, an underwritten public offering, and if the managing
underwriter determines and advises the Company in writing that the inclusion in
such Registration Statement of all of the Shares, together with the shares of
other persons who have exercised their right to include their shares in the
Registration Statement (collectively referred to as the "Aggregate Shares"),
would adversely affect the marketability of the offering of the Registration
Shares, then the Holder and such other holders shall be entitled to register the
portion of such number of Aggregate Shares as the managing underwriter
determines may be included without such adverse effects (collectively,
"Aggregate Underwriter Shares"), subject to the terms, exceptions and conditions
of this Section 8. The number of Aggregate Underwriter Shares which the Holder
shall be entitled to register shall be equal to the number of Aggregate
Underwriter Shares multiplied by a fraction, the numerator of which is the
number of Shares and the denominator of which is the number of Aggregate Shares.
(c) The Company shall bear all costs and expenses of registration of
the Registration Shares; provided, however, that the Holder shall bear all costs
and expenses directly related to registration of the Shares.
(d) It shall be a condition precedent to the Company's obligation to
register any Shares pursuant to this Section 8 that the Holder shall provide the
Company with all information and documents, and shall execute, acknowledge, seal
and deliver all documents reasonably necessary, to enable the Company to comply
with the 1933 Act, the State Acts, and all applicable laws, rules and
regulations of the SEC or of any state securities law authorities.
<PAGE>
(e) The Holder shall indemnity and hold harmless the Company, each of
its directors and officers who have signed the Registration Statement, each
person, if any, who is a controlling person of the Company and any underwriter
and its controlling persons, if any, from and against any and all losses,
claims, damages, expenses or liabilities (including amounts paid in settlement
and reasonable attorneys' fees) (the "Liabilities"), joint or several, to which
they or any of them may become subject under the 1933 Act, under any State Act
or at common law or otherwise insofar as the Liabilities arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or prospectus (as from time to time
amended or supplemented) or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein not misleading, which
statement or omission was made in reliance upon and in conformity with
information furnished to the Company by the Holder in connection therewith.
9. Loss and Destruction. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant
Certificate and, in the case of any such loss, theft or destruction, upon
delivery of an indemnity agreement or bond satisfactory in form, substance and
amount to the Company or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant Certificate, the Company at its expense will
execute and deliver, in lieu thereof, a new Warrant Certificate of like tenor.
10. Survival. The various rights and obligations of the Holder hereof as
set forth herein shall survive the exercise of this Warrant at any time or from
time to time and the surrender of this Warrant Certificate.
11. Notices. Whenever any notice, payment of any purchase price or other
communication is required to be given or delivered under the terms of this
Warrant, it shall be in writing and delivered by hand delivery or registered or
certified United States mail, postage prepaid, and will be deemed to have been
given or delivered on the date such notice, purchase price or other
communication is so delivered or posted, as the case may be, and, if to the
Company, it will be addressed to the address specified in Section 1 hereof, and
if to the Holder, it will be addressed to the registered Holder at his address
as it appears on the books of the Company.
HYDROGIENE CORPORATION
<PAGE>
By: /s/ Charles Kallmann
----------------------------
Title: President & CEO
-------------------------
Date: 25 August 1998
--------------------------
[CORPORATE SEAL]
ATTEST:
By: /s/ Michael Brette,
--------------------------------
Michael Brette, Secretary
<PAGE>
EXHIBIT 6 (i)
LICENSE AGREEMENT
This agreement, effective as of August 21, 1997, is made and entered into
between Magna IV, Ltd. (MFL), a Delaware corporation; and The Hydrogiene
Corporation (THC), a California corporation.
A. MFL was incorporated in Delaware on December 28, 1995, under the name
Hydrogiene Corporation, for the purpose of designing and developing a family of
personal hygiene products similar to European cleansing, therapy and Sitzbath
systems.
B. THC was incorporated in California on August 21, 1997, for the purpose
of continuing with the development of the products, manufacturing and marketing
throughout the Western Hemisphere.
C. THC desires to license all of the technology developed by MFL, and MFL
is willing to grant a license under the terms set forth below.
Therefore, the parties agree as follows:
1. MFL hereby grants to THC, on the terms and conditions hereinafter
stated, the exclusive license, with the right to sublicense, to make, have made,
use, and sell the Hydrogiene line of products developed by MFL in the Western
Hemisphere. Also included within the scope of this license is the right to any
and all of the trademarks, servicemarks, tradenames and copyrighted material
developed by MFL.
2. MFL also assigns to THC all of its other intangible assets, included
but not limited to its accounts receivable, contract rights, bank accounts, etc.
3. As consideration for the rights granted hereunder, THC shall pay MFL a
royalty equal to three percent (3%) of the gross sales of all Hydrogiene
products, whether now existing or developed in the future. There will be a
minimum payment each year as follows: $100,000.00 the first year, $250,000 the
second year, and $300,000 the third and each subsequent year. The first month of
the first royalty year will begin in the month THC makes its first shipment of
products to a bona fide customer.
3.1 The royalty payment shall be made on or before the end of the
month following each calendar quarter, and shall be calculated on gross
sales for the prior calendar quarter.
3.2 If the payments any year exceed three percent of gross sales, the
difference may be carried forward to apply to the royalty due for any
subsequent year.
1
<PAGE>
3.3 Upon reasonable notice and not more often than once per year, MFL
or its representatives shall have the right to inspect the books of THC for
the purpose of confirming the correctness of the royalty payment. If the
inspection reveals a payment shortfall in excess of two percent (2%), the
cost of any such inspection shall be borne by THC.
3.4 Upon the request of MFL, THC will make interim monthly royalty
payments on or before the end of the month following the month(s) in which
the sales are made, or if it is clear that the regular royalty will not
meet the minimum required under this agreement.
4. As additional consideration for the rights granted hereunder, THC
shall assume all of the liabilities of MFL, including but not limited to
accounts payable, contract obligations, loans payable, etc.
5. Unless sooner terminated as hereinafter provided, the term of this
agreement shall continue for a period of twenty-five (25) years from the
effective date of this agreement. THC grants MFL an option to extend this
agreement for additional terms of twenty-five years at the increased royalty of
four per cent. The option must be exercised by written notice to the President
or Secretary of THC at least thirty days but not more than three months before
the preceding term expires.
6. Upon the granting of any sublicense by THC, MFL shall promptly be
furnished with a copy of each such sublicense.
7. In the event that any infringement of the licensed product or
technology comes to the attention of either party, such party shall promptly
notify the other party of the infringement. Thereupon, the parties shall consult
with a view to reach an agreement as to ways and means of eliminating the
infringement. If litigation becomes necessary, all of the costs of such
litigation shall be borne by THC. MFL's total obligation shall be to cooperate
to the fullest extent possible with THC in the litigation.
8. In no event will MFL be liable for any special, consequential,
indirect, or incidental damages, however caused and on any theory of liability,
arising out of this Agreement.
9. MFL makes no representation, extends no warranties of any kind, either
express, implied, or otherwise, nor assumes any responsibilities or liabilities
whatever with respect to the use or sale by either THC, its vendees or
transferees concerning products incorporating or made by use of any invention or
rights licensed under this agreement.
10. THC shall indemnify, defend (at the option of MFL and only upon the
written consent of MFL) and hold MFL harmless from any and all claims, expenses,
costs, and liability for damages of whatever nature arising out of the
manufacture, use, importation, or Sale, pursuant to this agreement, of products
by THC or its customers, or promotional activities with respect thereto.
2
<PAGE>
11. The waiver by either party of any provision, condition or requirement
of this agreement shall not constitute a waiver of any future obligation to
comply with such provision, condition or requirement.
12. Should any dispute arise concerning any provision of this agreement,
the disputants shall be required to submit the matter to mediation. The parties
will confer on the selection of the mediator, but if they cannot reach agreement
within ten days from the time that their own negotiations break down, the matter
shall be submitted to the American Arbitration Association Mediation Program,
who shall select the Mediator. The disputants will share the mediation costs
equally. If the matter cannot be resolved by mediation within forty-five days,
or within any additional time period agreed upon by the disputants, the matter
will be resolved through arbitration in accordance with the applicable rules of
the American Arbitration Association in effect at the time a demand for
arbitration is filed with the Association. The arbitrator shall determine the
prevailing party, who shall be entitled to his costs and reasonable attorney's
fees.
13. The terms and conditions herein contained constitute the entire
agreement between the parties and supersede all previous agreements and
understandings, whether oral or written, between the parties hereto with respect
to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed in duplicate by duly authorized officers or representatives as of the
date first written above.
DATE: DATE:
Magna IV, Ltd., by: The Hydrogiene Corporation, by:
/s/ Charles W. Kallmann /s/ N. Munro Merrick
--------------------------- ---------------------------
Charles W. Kallmann, President N. Munro Merrick,
Executive Vice President
3
<PAGE>
HYDROGIENE
Amendment to License Agreement
This Amendment to License Agreement is made and effective the 1st day of
September, 1997, by and between Magna IV, Ltd., a Delaware Corporation ("MFL"),
and The Hydrogiene Corporation, a Florida Corporation ("THC").
Recitals
A. MFL and THC are parties to a License Agreement, dated August 21, 1997,
(the "Agreement") pursuant to which MFL licensed its technology to THC.
B. Subsequent to the initial execution of the Agreement, The Hydrogiene
Corporation, a California corporation, was merged into a Nevada corporation of
the same name, which new Nevada corporation succeeded to the rights and
obligations of the Agreement. The new Nevada corporation was subsequently merged
into THC, which is a Florida' corporation, and which succeeded to all the rights
and obligations of the merged Nevada corporation.
C. In the Agreement, the parties acknowledge the purpose of THC was to
continue "the development of the products, manufacturing and marketing" of the
MFL products and technology. MFL and THC wish to memorialize their intention
regarding the expenses of the development activities of THC under the Agreement.
Agreement:
1. In furtherance of the license granted to THC under the Agreement, and
in consideration of the mutual rights and responsibilities thereunder, THC shall
be responsible for pursuing and completing the development of the products in
the product line licensed to THC by MFL. Any costs and expenses of those
development activities shall be the sole responsibility of THC, and its
successors and assigns.
2. Except as expressly amended herein, the Agreement shall remain in full
force and effect.
Magna IV, Ltd., The Hydrogiene Corporation
A Delaware corporation A Florida corporation
By: /s/ Charles Kallmann By: /s/ Michael N. Brette
----------------------- ---------------------
Charles Kallmann Michael N. Brette
Chairman Executive Vice President
<PAGE>
EXHIBIT 6 (ii)
HYDROGIENE EMPLOYMENT CONTRACT
The Hydrogiene Corporation, a California Corporation, located at 16955 Via
Del Campo, Ste. 230, San Diego, California, 92127 (Hydrogiene), and Charles
Whitman Kallmann, of 17539 Adena Lane, San Diego, CA 92128, in consideration of
the mutual promises made herein, agree as follows:
1. Term. Hydrogiene hereby employs Kallmann and Kallmann hereby accepts
employment with Hydrogiene for an initial term of five years beginning August
21, 1997. This agreement shall be renewed automatically for succeeding terms of
three years each unless either party gives notice to the other at least one year
prior to the expiration of the initial term or any renewal thereof, subject to
prior termination as hereinafter provided.
2. Duties. Kallmann shall serve as the Chief Executive officer. In his
capacity of CEO, Kallmann shall do and perform all services, acts, or things
necessary or advisable to manage and conduct the business of Hydrogiene, subject
at all times to the policies set by Hydrogiene's Board of Directors, and to the
consent of the Board when required by the terms of this contract. His management
responsibilities shall include, but are not limited to the areas of personnel,
finance, credit, banking, investments, securities, insurance, shareholders,
acquisitions, marketing, and international business activities.
2.1 The duties and title of Kallmann may be reasonably changed from
time to time with the mutual consent of both parties without resulting in
the rescission of this agreement. Notwithstanding any such change, the
employment of Kallmann shall be construed as continuing under this
agreement as modified.
2.2 If Kallmann at anytime during the term of this agreement or any
extension thereof should be unable, because of personal injury, illness, or
any other cause to perform his duties under this agreement, Hydrogiene, in
its sole discretion, may assign Kallmann to other duties which are
commensurate with his abilities to perform.
2.3 During the term of this agreement Kallmann will devote
substantially his full business time and attention to the affairs of
Hydrogiene, provided, however, that he may serve as a director of other
corporations and may engage in other business and professional activities,
whether as an investor or otherwise, to the extent that they do not
substantially interfere with the performance of his duties to Hydrogiene.
2.4 Kallmann shall perform his duties at the office of Hydrogiene, or
such other place or places as reasonably determined by Hydrogiene. To the
extent that the performance of his duties would not be impaired, Kallmann
shall have the right to perform his duties from his residence or other
outside locations.
3. Trade Secrets. The parties acknowledge and agree that during the term
of this agreement and in the course of his employment, Kallmann shall have
access to and become
1
<PAGE>
acquainted with the operation and processes of Hydrogiene, including without
limitation, financial, personnel, sales, planning and scientific information
that is owned by Hydrogiene and regularly used in the operation of Hydrogiene's
business and that this information constitutes Hydrogiene's trade secrets.
3.1 Kallmann agrees that he will not disclose any such trade secrets,
directly or indirectly, to any other person or use them in any way, either
during the term of this agreement or at any time thereafter, except as is
required in the course of his employment with Hydrogiene, unless this
information is obtained from a third source who has not improperly acquired
it, or the information is in the public domain.
3.2 Kallmann further agrees that all files, records, documents,
equipment, and similar items relating to Hydrogiene's business, whether
prepared by Kallmann or others, are and shall remain exclusively the
property of Hydrogiene and that they shall not be removed from the premises
of Hydrogiene unless necessary for the more efficient performance of his
duties.
4. Compensation. As compensation for the services rendered hereunder,
Kallmann shall receive a salary at the rate of $144,000.00 per annum, payable
not less often than once per month, except that a portion of his salary may, by
resolution of the Board of Directors after consultation with the company's
accountant, be deferred until such time as the cash flow of the company permits
full salary payment.
4.1 From the date of deferral until payment, the amount of deferred
salary shall earn interest at the rate of 12% per annum.
4.2 For each fiscal year of Hydrogiene in which the annual
performance requirements of Kallmann and/or the business are met, Kallmann
shall be entitled to receive a bonus. This bonus shall be in addition to
any other compensation to which Kallmann may be entitled under this
agreement, and shall be paid within thirty days following completion of
Hydrogiene's fiscal year audit, review or compilation by its outside
accountants, or within 120 days after the end of the fiscal year, whichever
is earlier. The performance goals shall be set by resolution of the Board
of Directors at or prior to the beginning of each fiscal year.
4.3 Effective September 1, 1998, and on the first of September of
each year thereafter during the term of this agreement or any extension
thereof, Kallmann shall be entitled to an adjustment of his salary based on
the change in the Consumer Price Index for San Diego County. The base month
for the year beginning September 1, 1998, shall be July, 1997, and the
index month used to calculate the increase will be July, 1998. If
statistics are not available for the month of July, the next earlier month
for which data are available shall be utilized.
5. Employer Obligations. Hydrogiene shall provide Kallmann with the
compensation, incentives, benefits, and business expense reimbursement specified
elsewhere in this agreement. Hydrogiene shall provide Kallmann with a private
office, stenographic help, office equipment, office
2
<PAGE>
supplies, and other facilities and service suitable to his position and adequate
for the performance of his duties, limited only by the financial ability of the
company to provide these facilities and services.
5.1 Hydrogiene will promptly reimburse Kallmann for all reasonable
business expenses incurred by him in promoting the business of the Company,
including expenditures for dues, subscriptions, entertainment, gifts and
travel, provided that Kallmann furnishes to the Company adequate records
and other documentary evidence required by tax authorities for each
expenditure. Kallmann shall be permitted to have his wife travel with him
at company expense.
6. Benefits. Kallmann shall be entitled to all of the benefits provided
to any other employee, and in addition shall be entitled to the specific
benefits set forth below.
6.1 Hydrogiene agrees to reimburse Kallmann for all medical, vision,
dental and hospital bills incurred by him for himself, his wife, and all
others who qualify as his dependents under the Internal Revenue Code. Such
reimbursements shall be limited to that portion of such bills, if any,
which will not be paid by insurance. Kallmann shall submit in any
reasonable form an application for reimbursement, accompanied by
appropriate backup receipts or other data. During each year of employment
under this agreement, Hydrogiene shall provide Kallmann at its expense a
comprehensive physical examination, including complete cardiovascular and
angiogram examinations. If not provided by the company's insurer, these
examinations shall be at a medical facility of Kallmann's choice.
6.2 Hydrogiene will provide Kallmann with group life insurance
coverage in the amount of $1,000,000, plus accidental death and
dismemberment coverage in the amount of $1,000,000. One-half of the
proceeds shall be payable to the Company. Coverage shall begin on the first
day of the term of this agreement, and shall continue throughout the term
of Kallmann's employment, subject to an adjustment to insure that coverage
will at no time be less than three times Kallmann's basic salary as
adjusted under section 4.3 above.
6.3 Unless Kallmann has been terminated for cause pursuant to
sections 7 through 7.2, Hydrogiene agrees to continue at its expense the
benefits provided in section 6.1 and 6.2 above for a period of sixty months
after termination, after which Kallmann at his option may continue the
insurance for a period of thirty six additional months at his own expense.
6.4 Hydrogiene will provide Kallmann with two vehicles for the term
of this agreement. These vehicles shall be selected by Kallmann. Kallmann
shall be entitled to replacement vehicles every three years. The company's
contribution to ownership or lease costs shall be limited to the down
payment plus $700.00 per month each. In addition, Hydrogiene shall be
responsible for all other costs of operation and ownership of the vehicle
to the extent the vehicle is used for company business. Kallmann shall
provide the Board of Directors with a record of all mileage used for
personal purposes. The method of holding title and reimbursing expenses
shall be determined by the Board of Directors after consultation with the
company's accountant. If the vehicle is owned by Hydrogiene when
3
<PAGE>
Kallmann's employment hereunder is terminated or not renewed without cause,
then Kallmann shall have the right but not the obligation to purchase his
vehicles from Hydrogiene at the then existing wholesale bluebook value.
6.5 Kallmann shall be entitled during the first year of the term of
this agreement to an annual vacation of four weeks. During the second
through fourth years of employment, Kallmann shall be entitled to six weeks
of annual vacation. In the fifth and subsequent years, he shall be entitled
to seven weeks of annual vacation. At least two weeks must be taken each
year. The time for such vacation shall be selected by Kallmann and approved
by the Board of Directors, and must be taken within one year after the year
in which it has accrued. Kallmann shall be permitted to accumulate up to
six weeks of vacation time.
6.6 Hydrogiene shall institute a Salary Continuation Plan which shall
provide for continuation of Kallmann's salary in the event of sickness or
disability. The plan may be funded by insurance paid for by the company,
and shall provide for a level of benefits equal to 100% of Kallmann's
salary immediately preceding the date of disability or sickness. Benefits
shall continue for a minimum period of two years or until the end of the
then current term of this agreement, whichever is longer.
6.7 Hydrogiene agrees to provide annual financial planning, tax
return preparation and consulting services to Kallmann by the company's
accountant during the term of this agreement at the company's expense.
Kallmann acknowledges that the value of such consultation services may be
taxable to him.
6.8 On termination other than for cause, Kallmann shall have the
option of selling to the company or its designee the residence owned and
occupied by Kallmann closest to his principal place of work at the date of
termination. The sales price shall be the higher of (1) acquisition cost
plus improvements, including without limitation all related closing costs,
taxes and transfer fees, or (2) the average fair market value of two
appraisals of the residence as determined by two MAI or equivalent
appraisers, one selected by each party. The appraisal shall be made within
sixty days after the date of termination or by a date set by mutual
agreement of the parties. After Kallmann is notified by the company of the
sales price, Kallmann shall have thirty days in which to decide whether to
exercise his option. The sales price shall be paid to Kallmann in full in
cash by Hydrogiene within five business days after the company is notified
that Kallmann is exercising his option. All costs of this closing,
including without limitation escrow fees, taxes and closing costs shall be
borne by the company.
6.9 Hydrogiene agrees at Kallmann's request to loan him money for the
purchase of a home, provided funds are available from retained earnings.
Interest shall accrue at the rate of prime plus 2% and shall be paid not
less often than annually. Payments of interest only or more shall be made
not less often than annually. The loan shall be repaid within ten years. In
the event that the company does not have the funds available, the company
may borrow from an outside lender, and Kallmann shall make whatever
payments are required by the loan contracts.
4
<PAGE>
7. Termination for Cause. Hydrogiene may terminate Kallmann's employment
hereunder for cause. Cause is defined as the willful and continued failure by
Kallmann to substantially perform his duties hereunder after written demand for
substantial performance is delivered by the company to Kallmann, specifically
identifying the manner in which the company believes that Kallmann has not
substantially performed his duties. The termination date shall be specified in
the notice and shall not be less than thirty days after delivery of the notice
to Kallmann. During said notice period, Kallmann shall have the opportunity to
discuss the matter with the Board of Directors, and if the Board determines that
Kallmann is then substantially performing his duties, the notice of termination
shall be canceled. No act or failure to act on Kallmann's part shall be
considered willful unless done or omitted to be done by him in bad faith and
without reasonable belief that his action or omission was in the best interests
of the company. In the event that the Board determines that termination is
justified, the resolution terminating Kallmann shall set forth all of the
particulars justifying the termination.
7.1 Hydrogiene may also terminate this agreement for cause in the
event of a material breach by Kallmann of this contract which is not cured,
in the case of the curable breach, by Kallmann within thirty days after
written notice of the specific term of this contract deemed by the company
to have been breached. Kallmann shall have the same rights to a hearing as
set forth in paragraph 7 above.
7.2 Prior to the expiration of any notice period, Kallmann shall have
the right to notify the Board of Directors that he disputes the basis for
the termination. In that event, the dispute shall be submitted to
arbitration in accordance with the provisions of this agreement, and
Kallmann shall be entitled to his full salary until the effective date of
any adverse decision made by the arbitrator. In the event that Kallmann
prevails in the arbitration (and the arbitrator shall determine the
prevailing party), Hydrogiene shall reimburse Kallmann for all of his costs
incurred by him in the dispute, including reasonable attorneys' fees.
8. Sale of Company. In the event that Hydrogiene is sold and the
purchaser desires to terminate this contract, the purchaser shall pay Kallmann
100% of the money owed for the balance of this contract, and in addition must
pay three times Kallmann's final annual salary as severance pay to compensate
for other benefits to which Kallmann might be entitled under the contract. The
severance pay shall be paid in a lump sum unless Kallmann requests some other
payment plan.
9. Miscellaneous.
9.1 Indemnification. In accordance with its Articles and Bylaws,
Hydrogiene warrants and represents to Kallmann that it will indemnify him
to the fullest extent of California law, and that it is and shall be
continue to be covered and insured up to the maximum limits provided by all
insurance which the company maintains to indemnify its directors, officers
and other agents and to indemnify the company for any obligations which it
incurs as a result of its undertaking to indemnify its officers and
directors' and that the company will exert its best efforts to maintain
such insurance in effect throughout the term of Kallmann's employment.
5
<PAGE>
9.2 Entire Agreement. This agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with
respect to Kallmann's employment by the company.
9.3 Successors. This agreement shall be binding upon and inure to the
benefit of any successor to Hydrogiene.
9.4 Governing Law. This contract shall be construed in accordance
with the laws of the State of California.
9.5 Notices. Any notices to be given hereunder by either party to the
other may be effected by personal delivery in writing, in which case the
notice shall be effective upon delivery. Written notice may be delivered by
mail, postage pre-paid with return receipt requested, in which case notice
shall be effective on the third business day after mailing. Notice may be
delivered by facsimile transmission and shall be effective on the following
business day. Notices shall be addressed to each party at its address
appearing in the introductory paragraph of this agreement, or at any
address provided by either party for purposes of notice.
9.6 Mediation/Arbitration. Should any dispute arise concerning any
provision of this contract (except Section 7.2), the disputants shall be
required to submit the matter to mediation. The parties will confer on the
selection of the mediator, but if they cannot reach agreement within ten
days from the time that their own negotiations break down, the matter shall
be submitted to the American Arbitration Association Mediation Program, who
shall select the Mediator. The disputants will share the mediation costs
equally. If the matter cannot be resolved by mediation within forty-five
days, or within any additional time period agreed upon by the disputants,
the matter shall be settled by binding arbitration in San Diego County
under the commercial arbitration rules of the American Arbitration
Association then existing, and judgment on the Arbitration award may be
entered in any court having jurisdiction over the subject matter of the
controversy. The arbitrator shall determine the prevailing party, who shall
be entitled to his costs and reasonable attorney's fees.
6
<PAGE>
Executed in San Diego, California, on October 24, 1997.
Hydrogiene Corporation by:
/s/ Charles W. Kallmann
--------------------------------------------
Charles W. Kallmann, Chief Executive Officer
/s/ Tony L. Wilkerson
--------------------------------------------
Tony L. Wilkerson, President
/s/ Charles W. Kallmann
--------------------------------------------
Charles W. Kallmann
7
<PAGE>
EXHIBIT 6 (iii)
GRANT OF OPTION AND AGREEMENT
TO PURCHASE CORPORATE STOCK
OPTION GIVEN this 11th day of August, 1999, by Hydrogiene Corporation,
of San Diego, California ("grantor"), by the authority of the board of directors
of grantor corporation, in accordance with a resolution of the board adopted at
a board meeting on the 28/th/ day of March, 1999, to Charles W. Kallmann, of San
Diego, California ("grantee"):
1. Grantor hereby grants to grantee an option to purchase 3 million
(3,000,000) shares of the common stock of grantor corporation. Such
purchase shall be on the terms and conditions stated in this option
agreement.
2. This option is effective immediately when executed by grantor, and
will expire at 5:00 o'clock p.m. on December 31, in the year 2002.
Notice of the option shall be provided grantee in writing.
3. Grantee may exercise this option only by delivering to grantor a
written notice thereof, signed by grantee, and tendering the
consideration there set forth, before the time set for expiration of
the option. Any such notice, if sent by registered or certified mail,
shall be considered delivered when deposited in the United States
mail.
4. As consideration for the grant of this option, grantee has paid to
grantor, concurrently with the execution hereof, the sum of $100, and
other valuable consideration, receipt of which is acknowledged by
grantor. This option is exercisable either partially or in full during
the option period. Grantee may partially exercise the option as
frequently and in such increments as grantee desires, cumulatively, up
to the total number of optioned shares.
5. The terms of this option are as follows: Grantee may purchase the
stated number of shares at the strike price calculated at fifteen
percent (15%) of the bid price of the stock on the date the option is
exercised.
6. In the event grantee fails to exercise this option, grantor shall
retain all consideration paid as consideration for this option. If the
option is exercised, the sum paid as consideration for this option
shall be applied to the purchase price under the terms hereof.
<PAGE>
7. This option agreement shall be binding on and shall inure to the
benefit of the parties and their respective heirs, successors, or
assigns.
GRANTOR: HYDROGIENE CORPORATION
By: /s/ Michael N. Brette Dated: 11 August 1999
--------------
Michael N. Brette
Attested:
By: /s/ Karl R. Rolls, Jr. Dated: 11 August 1999
--------------
Karl R. Rolls, Jr., Secretary
<PAGE>
EXHIBIT 6(iv)
GRANT OF OPTION AND AGREEMENT
TO PURCHASE CORPORATE STOCK
OPTION GIVEN this 11/th/ day of August, 1999, by Hydrogiene Corporation, of
San Diego, California ("grantor"), by the authority of the board of directors of
grantor corporation, in accordance with a resolution of the board adopted at a
board meeting on the 28/th/ day of March, 1999, to Michael N. Brette, of Rancho
California, California ("grantee"):
1. Grantor hereby grants to grantee an option to purchase 3 million (3,000,000)
shares of the common stock of grantor corporation. Such purchase shall be on the
terms and conditions stated in this option agreement.
2. This option is effective immediately when executed by grantor and will expire
at 5:00 o'clock p.m. on December 31, in the year 2002. Notice of the option
shall be provided grantee in writing.
3. Grantee may exercise this option only by delivering to grantor a written
notice thereof, signed by grantee, and tendering the consideration there set
forth, before the time set for expiration of the option. Any such notice, if
sent by registered or certified mail, shall be considered delivered when
deposited in the United States mail.
4. As consideration for the grant of this option, grantee has paid to grantor,
concurrently with the execution hereof, the sum of $100, and other valuable
consideration, receipt of which is acknowledged by grantor. This option is
exercisable either partially or in full during the option period. Grantee may
partially exercise the option as frequently and in such increments as grantee
desires, cumulatively, up to the total number of optioned shares.
5. The terms of this option are as follows: Grantee may purchase the stated
number of shares at the strike price calculated at fifteen percent (15%) of the
bid price of the stock on the date the option is exercised.
6. In the event grantee fails to exercise this option, grantor shall retain all
consideration paid as consideration for this option. If the option is exercised,
the sum paid as consideration for this option shall be applied to the purchase
price under the terms hereof.
-1-
<PAGE>
7. This option agreement shall be binding on and shall inure to the benefit of
the parties and their respective heirs, successors, or assigns.
GRANTOR: HYDROGIENE CORPORATION
By: /s/ Charles W. Kallmann Dated: 11 August, 1999
-----------------------------
Charles W. Kallmann, Chairman
Attested:
By: /s/ Karl R. Rolls, Jr. Dated: 11 August, 1999
-----------------------------
Karl R. Rolls, Jr., Secretary
-2-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> DEC-31-1999 DEC-31-1998
<CASH> 0 41,169
<SECURITIES> 0 0
<RECEIVABLES> 0 3,684
<ALLOWANCES> 0 0
<INVENTORY> 35,036 0
<CURRENT-ASSETS> 61,389 44,853
<PP&E> 124,527 66,588
<DEPRECIATION> (40,870) (25,112)
<TOTAL-ASSETS> 145,046 86,329
<CURRENT-LIABILITIES> 1,304,267 1,175,184
<BONDS> 168,500 23,261
0 0
0 0
<COMMON> 4,199 1,234
<OTHER-SE> (1,331,920) (1,113,350)
<TOTAL-LIABILITY-AND-EQUITY> 145,046 86,329
<SALES> 21,942 8,920
<TOTAL-REVENUES> 21,974 9,028
<CGS> 43,792 124,534
<TOTAL-COSTS> 5,962,336 4,183,105
<OTHER-EXPENSES> 5,862,673 4,040,599
<LOSS-PROVISION> 0 1,650
<INTEREST-EXPENSE> 58,710 16,322
<INCOME-PRETAX> (5,940,362) (4,174,077)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (5,940,362) (4,174,077)
<DISCONTINUED> 0 0
<EXTRAORDINARY> (240,096) 0
<CHANGES> 0 0
<NET-INCOME> (6,180,458) (4,174,077)
<EPS-BASIC> (0.33) (0.48)
<EPS-DILUTED> (0.33) (0.48)
</TABLE>
