<PAGE> 1
U.S. SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF
1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO _______.
COMMISSION FILE NUMBER: 0-26417
THE HYDROGIENE CORPORATION
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
FLORIDA 91-1853701
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
12335 WORLD TRADE DRIVE, SUITE 8, SAN DIEGO, CA 92128
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(858) 675-8033
(ISSUER'S TELEPHONE NUMBER)
CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. N/A
Applicable only to corporate issuers
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of August 21, 2000, the issuer had
67,331,058 shares of common stock outstanding and no shares of preferred stock
issued or outstanding.
<PAGE> 2
Transitional Small Business Disclosure Format (Check one): Yes [X] No [ ]
<PAGE> 3
THE HYDROGIENE CORPORATION
AND SUBSIDIARIES
FINANCIAL STATEMENTS
AS OF JUNE 30, 2000
<PAGE> 4
THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
<TABLE>
<S> <C> <C>
PAGE 1 INDEPENDENT ACCOUNTANTS' REPORT
PAGE 2 BALANCE SHEETS AT JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
PAGE 3 STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS
ENDED JUNE 30, 2000 AND JUNE 30, 1999 AND FROM DECEMBER 28, 1995
(INCEPTION) TO JUNE 30, 2000 (UNAUDITED)
PAGE 4 STATEMENTS OF CASH FLOW FOR THE SIX MONTHS ENDED JUNE 30, 2000
AND JUNE 30, 1999 AND FROM DECEMBER 28, 1995 (INCEPTION) TO JUNE
30, 2000 (UNAUDITED)
PAGE 5 NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE> 5
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors of:
The Hydrogiene Corporation & Subsidiaries
(a development stage company)
We have reviewed the accompanying consolidated balance sheet and the related
consolidated statements of operations and consolidated cash flows of The
Hydrogiene Corporation and Subsidiaries (a development stage company) as of June
30, 2000, and for the three month and six month periods then ended. These
financial statements are the responsibility of the Company's management.
We conduct our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquires of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
WEINBERG & COMPANY, P.A.
BOCA RATON, FL
August 10, 2000
<PAGE> 6
THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 2000
(Unaudited) December 31, 1999
------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 11,563 $ --
Marketable securities 1,156 --
Accounts receivable 1,577 --
Inventories 281,010 35,036
Due from officer 114,004 12,500
Prepaid expenses and other assets 58,855 13,853
Other receivable 1,909 --
------------ ------------
Total Current Assets 470,074 61,389
------------ ------------
PROPERTY & EQUIPMENT - NET 351,308 83,657
------------ ------------
OTHER ASSETS
Advances - Pursuant to merger 306,883 --
Intangible assets, net 930,418 --
------------ ------------
Total Other Assets 1,237,301 --
------------ ------------
TOTAL ASSETS $ 2,058,683 $ 145,046
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Cash overdraft $ -- $ 57,152
Accounts payable 729,287 936,595
Payroll payable 77,347 --
Payroll tax payable and accrued 101,834 84,223
Interest payable 5,333 6,411
Loans payable 1,591,122 217,241
Obligation under capital lease - current -- 2,645
------------ ------------
Total Current Liabilities 2,504,923 1,304,267
------------ ------------
LONG TERM LIABILITIES
Loans payable -- 168,500
------------ ------------
TOTAL LIABILITIES 2,504,923 1,472,767
------------ ------------
STOCKHOLDERS' DEFICIENCY
Preferred stock, $.001 par value, 50,000,000 shares authorized, none issued and
outstanding -- --
Common stock, $.0001 par value, 250,000,000 shares authorized, 62,463,944 and
41,992,581 shares issued and outstanding 6,247 4,199
Additional paid-in capital 31,745,163 9,854,502
Other comprehensive loss (2,808) --
Accumulated deficit during development stage (31,429,216) (11,095,380)
------------ ------------
319,386 (1,236,679)
Less: stock issued for future services (765,626) (91,042)
------------ ------------
Total Stockholders' Deficiency (446,240) (1,327,721)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 2,058,683 $ 145,046
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 7
THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the
Period From
For the Three For the Three For the Six For the Six December 28, 1995
Months Ended Months Ended Months Ended Months Ended (Inception) to
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999 June 30, 2000
------------- ------------- ------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
SALES $ 4,262 $ 10,369 $ 7,172 $ 17,820 $ 43,868
COST OF GOODS SOLD 12,806 17,412 18,199 32,702 224,035
------------ ------------ ------------ ------------ ------------
GROSS LOSS (8,544) (7,043) (11,027) (14,882) (180,167)
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES
Royalty 75,000 228,190 271,383 456,380 1,305,015
Advertising 213,876 -- 302,751 18,992 500,099
Consulting 6,659,009 790,125 12,737,373 1,042,575 16,937,350
Officer compensation 4,728,000 171,000 4,882,793 934,666 8,238,224
Employee compensation and taxes 693,526 22,121 786,327 84,769 1,278,312
Research and development 53,169 -- 159,586 3,500 232,776
Professional fees 486,138 -- 542,038 73,893 1,037,897
Depreciation and amortization 108,422 4,649 131,157 9,298 174,864
Bad debt expense 123,000 -- 123,000 -- 123,000
Selling, general and administrative 259,508 50,134 435,087 99,547 1,152,237
------------ ------------ ------------ ------------ ------------
Total Operating Expenses 13,399,648 1,266,219 20,371,495 2,723,620 30,979,774
------------ ------------ ------------ ------------ ------------
LOSS FROM OPERATIONS (13,408,192) (1,273,262) (20,382,522) (2,738,502) (31,159,941)
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (2,193) (14,678) (6,804) (29,356) (86,078)
Interest income 1,375 -- 4,592 25 4,812
Gain (loss) on abandonment of leasehold
improvements and equipment -- -- -- -- 1,189
------------ ------------ ------------ ------------ ------------
Total Other Income (Expense) (818) (14,678) (2,212) (29,331) (80,077)
LOSS BEFORE EXTRAORDINARY ITEM (13,409,010) (1,287,940) (20,384,734) (2,767,833) (31,240,018)
------------ ------------ ------------ ------------ ------------
EXTRAORDINARY ITEM
Gain (loss) on debt extinguishment 27,000 (46,250) 50,898 (46,250) (189,198)
------------ ------------ ------------ ------------ ------------
NET LOSS $(13,382,010) (1,334,190) (20,333,836) (2,814,083) (31,429,216)
============ ============ ============ ============ ============
Net loss per share $ (0.26) (0.09) (0.43) (0.20) (2.22)
============ ============ ============ ============ ============
Weighted average number of shares
outstanding - basic and diluted 51,512,454 15,218,145 47,102,283 13,860,756 14,144,440
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 8
THE HYDROGIENE CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the
For the For the period from
six month six month December 1, 1995
period ended period ended (inception) to
June 30, 2000 June 30, 1999 June 30, 2000
(Unaudited) (Unaudited) (Unaudited)
------------- ------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(20,333,836) $ (2,814,083) $(31,429,216)
Adjustments to reconcile net loss to net cash used in operating
activities:
Bad debt expense 123,000 -- 123,000
Depreciation and amortization 131,157 9,298 174,864
Loss on abandonment of assets -- -- (1,189)
Expenses incurred on issuance of common stock 17,580,562 2,656,591 26,062,349
(Gain) Loss on extinguishment of debt (27,000) 46,250 189,198
Changes in operating assets and liabilities:
Increase (decrease) in:
Accounts receivable (1,577) (1,525) (1,577)
Other receivable (1,909) -- (1,909)
Prepaid expense (45,002) 135 (58,855)
Inventories (245,974) -- (281,010)
Advances - merger (429,883) -- (429,883)
(Increase) decrease in:
Cash overdraft (57,152) (14,450) --
Accounts payable (145,432) (96,451) 791,163
Interest payable (1,078) -- 14,575
Payroll taxes payable and accrued 17,611 -- 101,834
Payroll payable 77,347 -- 77,347
------------ ------------ ------------
Net Cash Used In Operating Activities (3,359,166) (214,235) (4,669,309)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (3,965) -- (3,965)
Purchase of property and equipment (314,224) (22,830) (399,752)
------------ ------------ ------------
Net cash used in investing activities (318,189) (22,830) (403,717)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of loan (29,000) -- (361,455)
Payment on capital lease obligations (2,645) -- (19,636)
Loan proceeds 3,822,067 -- 4,716,451
Due from officer (101,504) -- (114,004)
Issuance of common stock -- 200,000 863,233
------------ ------------ ------------
Net cash provided by financing activities 3,688,918 200,000 5,084,589
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 11,563 (37,065) 11,563
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD -- 41,169 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 11,563 $ 4,104 $ 11,563
============ ============ ============
NON-CASH INVESTING AND FINANCING:
Common stock exchanged for notes payable: $ 2,623,188 $ 10,000 $ 3,245,202
============ ============ ============
Equipment acquired under capital lease $ -- $ -- $ 19,636
============ ============ ============
Intangible exchanged for common stock $ 815,000 $ $ 815,000
============ ============ ============
Intangible acquired for note payable $ 200,000 $ $ 200,000
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 9
NOTE 1 BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles and the rules and regulations of the Securities and Exchange
Commission for interim financial information. Accordingly, they do not
include all the information and footnotes necessary for a comprehensive
presentation of financial position and results of operations.
It is management's opinion, however, that all adjustments (consisting
of normal recurring adjustments) have been made which are necessary for
a fair financial statements presentation. The results for the interim
period are not necessarily indicative of the results to be expected for
the year.
For further information, refer to the consolidated financial statements
and footnotes included in the Company's Form 10-KSB for the year ended
December 31, 1999.
NOTE 2 INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
net realizable value and consists of purchased parts and prepackaged
products at June 30, 2000:
<TABLE>
<S> <C>
Raw materials $271,175
Work in process 7,025
Finished goods 2,810
--------
$281,010
========
</TABLE>
NOTE 3 LOANS
During the three months ended June 30, 2000, the Company entered into
notes payable with an officer of $511,000. The notes bear interest of
9% annum, are unsecured, principle and accrued interest due on demand.
During the three months ended June 30, 2000, the Company entered into
loans payable with a stockholder of $851,271. The loans bear 9%
interest and are due on demand.
During the three months ended June 30, 2000, the Company settled a note
payable of $56,000 for $29,000. The settlement resulted in a gain on
exchange of debt of $27,000.
NOTE 4 STOCKHOLDERS' EQUITY
(A) CONVERSION OF NOTES INTO COMMON STOCK
<PAGE> 10
During the three months ended June 30, 2000, a loan aggregating
$2,623,188 was converted into 3,015,171 common shares. The shares were
valued at the quoted trading price on the conversion date. There was no
gain or loss resulting from the exchange of debt.
(B) COMMON STOCK ISSUED FOR SERVICES
During the three months ended June 30, 2000, 13,647,388 common shares
were issued for services to various service providers. The shares were
valued at $12,458,774, the quoted trading prices on the agreement
dates.
NOTE 5 ACQUISITION OF INTANGIBLE
The Company acquired an intangible product name valued at $1,015,000.
The company issued 500,000 shares of common stock valued at $815,000,
the quoted trading price on the Agreement dates, a note payable of
$200,000 payable in four installments of $50,000 starting August 30,
2000, and issued 500,000 options at a strike price of $0.075 per shares
vesting on August 15, 2000 and exercisable from three years from that
date.
NOTE 6 PENDING ACQUISITIONS
The Company has entered into a memorandum of understanding to license
certain intangible assets and formulas from LifeQuest, Inc., valued at
$5,105,593. The agreement grants the Company an exclusive five year
license from LifeQuest, Inc. to its patented products, trademarks,
formulas and product names. The Agreement calls for the Company to pay
cash of $232,300, issue 9,851,745 shares of common stock valued at
$3,349,593 and pay monthly payments of $28,700 over the life of the
license. The Company also acquired an option to purchase the intangible
assets for two years from the date of the Agreement.
NOTE 7 LEGAL MATTERS
The Company is subject to a lawsuit seeking damages for breach of an
agreement to issue unrestricted stock, fraud, and innocent
misrepresentation. The Company has not yet assessed the likely outcome
of this lawsuit.
NOTE 8 SUBSEQUENT EVENTS
The Company issued 3,060,000 shares of common stock for services to
various service providers. The shares were valued at $1,043,500, the
quoted trading price on the agreement dates.
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OVERVIEW
The Hydrogiene Corporation ("Hydrogiene" or the "Company") is a
development-stage company originally incorporated on December 28, 1995 in the
State of Delaware, reincorporated on August 28, 1997 in the State of California,
and 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 marketing of its products.
The Hydrogiene Corporation has placed primary emphasis on product
development and testing and customer test marketing. The Company has made
limited sales of its products and has been, and is currently operating at a
loss. The Company requires additional funding to continue its operations and to
accomplish its growth objectives and the marketing of its products.
The Company plans to raise an additional $10,000,000 pursuant to a Form SB-
2 to be filed in the third quarter of the year 2000, which will provide working
capital to fund the Company's operations for the remaining four months of the
year. The Company believes that after this round of funding is in place, the
Company will not need to raise additional funds for the remainder of the year.
The Company's securities are quoted on the Over-the-Counter Bulletin
Board ("OTCBB") under the symbol HICS.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX
MONTHS ENDED JUNE 30, 1999
REVENUES
Hydrogiene's revenues were $17,820 for the six months ended June 30,
1999 as compared to $7,172 for the three months ended June 30, 2000, a decrease
of 60%. As a development stage company, Hydrogiene is still in the process of
developing its customer base and expects its revenues to increase in the
foreseeable future.
COST OF GOODS SOLD
<PAGE> 12
The cost of goods sold was $18,199 for the six months ended June 30,
2000 as compared to $32,702 for the comparable period ended June 30, 1999, a
decrease of 44.3%. This decrease is commensurate with the Company's decrease in
revenues during the period.
OPERATING EXPENSES
The Company's Operating expenses increased to $20,371,495 for the six
months ended June 30, 2000 as compared to $2,723,620 for the six months ended
June 30, 1999. This increase was attributable to an increase in the following
expense categories: marketing and promotion; consulting services; officer and
employee compensation; research and development; professional fees; depreciation
and amortization; bad debt expense and selling, general and administrative. The
increases in consulting costs and officer compensation are in stock-based
compensation rather than in salary or other cash actually paid. The Company
engages consultants primarily to generate new business, identify potential
acquisitions, introduce the Company to potential joint venture partners and to
expand Hydrogiene's customer base. As consideration for these services, the
Company has adopted a compensation strategy based on the issuance of shares of
its common stock rather than paying consulting fees outright. The Company has
developed a similar strategy for officer and director compensation so that
instead of awarding cash bonuses to officers and directors, Hydrogiene issues
shares of its common stock to them as compensation. Thus Officer Compensation
increased to $4,882,793 for the six months ended June 30,2000 as compared to
$934,666 for the six months ended June 30, 1999. The Company believes that one
of the benefits of this type of compensation is that it provides officers with
an immediate incentive to focus on improving the Company's financial results and
thus increase the stock price. In addition, although accounting conventions
require that the Company expense the shares issued at their fair market value,
the Company has not had to expend any cash for the issuance of the stock.
Consulting costs were $12,737,373 for the six months ended June 30,
2000 as compared to $1,042,575 during the six months ended June 30, 1999 which
increase is attributable to issuance of shares of the Company's common stock as
discussed above.
Employee compensation increased to $786,327 for the six months ended
June 30, 2000 as compared to $84,769 during the six months ended June 30, 1999.
This increase of 276% is attributable to the Company's hiring of additional
personnel including a compliance director, salespeople, and MIS personnel.
Professional fees were $542,038 for the six months ended June 30, 2000
as compared to $73,893 for the comparable period ended June 30, 1999, an
increase of 633.5%. Professional fees consist of fees for legal, accounting and
consulting services performed on behalf of the Company. The increase is due
primarily to the expenses incurred in connection with the filing of the required
SEC reports Hydrogiene became a reporting Company in June 1999.
Depreciation and amortization expense was $131,157 for the six months
ended June 30, 2000 as compared to $9,298 during the comparable period ended
June 30, 1999, an increase of 131%. The increase in depreciation and
amortization was attributable primarily to the cost of the Company's acquisition
of an intangible product name, National Brokers and Distributors, valued at
$1,015,000.
Bad debt expense was $123,000 during the six months ended June 30,
2000, as compared to nil during the six months ended June 30, 1999. The Company
ceased its participation in two ventures, one a home
<PAGE> 13
blood test kit, the other a system for the ordering of fitness equipment and the
funds were unrecoverable, which necessitated writing off certain debt associated
with the ventures.
Selling, General and Administrative expenses were $435,087 during the
six months ended June 30, 2000 as compared to $99,547 during the comparable
period ended June 30, 1999, an increase of 337%. The increase was primarily
attributable to expenses associated with the Company's investigation and
analysis of potential acquisitions.
Total operating expenses were $20,371,495 for the six-month period
ended June 30, 2000 as compared to $2,723,620 for the six months ended June 30,
1999, an increase of 648%.
OTHER INCOME (EXPENSE)
The Company had other income (expense) during the six months ended June
30, 2000 of $2,212 as compared to $29,331 during the comparable period ended
June 30, 1999, a decrease of 92.5%.
NET LOSS BEFORE INCOME TAXES
For the six months ended June 30, 2000, the Company had a loss of
($20,333,836) as compared to net loss of ($2,814,083) during the six months
ended June 30, 1999. This increase is attributable to the Company's previously
noted increase in its various operating expenses and professional fees.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THE
THREE MONTHS ENDED JUNE 30, 1999
REVENUES
Hydrogiene's revenues were $4,262 for the three months ended June 30,
1999 as compared to $10,369 for the three months ended June 30, 2000, a decrease
of 58.9%. As discussed earlier, Hydrogiene is a development stage company and is
in the process of developing its market, attaining more widespread market
acceptance of its products and increasing its distribution channels. Hydrogiene
expects revenues to increase in the foreseeable future.
COST OF GOODS SOLD
The cost of goods sold was $12,806 for the three months ended June 30,
2000 as compared to $17,412 for the comparable period ended June 30, 1999, a
decrease of 26.5%. This decrease is commensurate with the Company's decrease in
revenues during the period.
OPERATING EXPENSES
The Company's Operating expenses increased to $13,399,648 for the three
months ended June 30, 2000 as compared to $1,266,219 for the three months ended
June 30, 1999, an increase of 958.2%. This increase was attributable to an
increase in marketing and promotion, consulting services, officer and employee
compensation, research and development, professional fees, depreciation and
amortization, bad debt expense and selling, general and administrative. As
mentioned earlier, the increases in consulting costs and officer compensation
are in stock-based compensation rather than in salary or other cash actually
paid.
<PAGE> 14
Thus Officer Compensation increased to $4,728,000 for the three months
ended June 30,2000 as compared to $171,000 for the three months ended June 30,
1999.
Consulting expenses were $6,659,009 for the three months ended June 30,
2000 as compared to $790,125 during the comparable period ended June 30, 1999,
an increase attributable primarily to the Company's strategy of issuing shares
of common stock in lieu of paying cash.
Employee compensation totaled $693,526 for the three months ended June
30, 2000 as compared to $22,121 for the three months ended June 30, 1999. This
increase is attributable to the Company's hiring of additional personnel
including a compliance director, salespeople, and MIS personnel.
Professional fees were $486,138 for the three months ended June 30,
2000 as compared to nil during the comparable period ended June 30, 1999. The
Company was not a reporting Company in the comparable period in 1999 and
therefore did not incur the expenses associated with the required SEC filings.
Depreciation and amortization expense was $108,422 for the three months
ended June 30, 2000 as compared to $4,649 during the comparable period ended
June 30, 1999. The increase in depreciation and amortization was attributable
primarily to the cost of the Company's acquisition of an intangible product
name, National Brokers and Distributors, valued at $1,015,000.
Bad debt expense was $123,000 during the three months ended June 30,
2000 as compared to nil during the three months ended June 30, 1999. The Company
ceased its involvement in two ventures it had been pursuing and was therefore
required to write off certain loans which had been extended to the companies
involved in these ventures.
Selling, General and Administrative expenses totaled $259,508 during
the three months ended June 30, 2000 as compared to $50,134 during the
comparable period ended June 30, 1999, an increase of 417.6%. As mentioned
earlier, the increase was largely attributable to expenses associated with the
Company's investigation of potential acquisitions.
Total operating expenses increased by $12,133,429 to $13,399,648 during
the three-month period ended June 30, 2000 as compared to total operating
expenses of $1,266,219 for the three months ended June 30, 1999.
This increase was attributable to the various reasons discussed above.
OTHER INCOME (EXPENSE)
The Company had other income (expense) during the three months ended
June 30, 2000 of $818 as compared to $14,678 during the comparable period ended
June 30, 1999, a decrease of 94.4%. This expense was net of interest income
realized by the Company in the amount of $1,375 for the three months ended June
30, 2000 as compared to nil in the comparable period ended June 30, 1999.
NET LOSS BEFORE INCOME TAXES
For the three months ended June 30, 2000, the Company had a loss of
($13,382,010) as compared to net loss of ($1,334,190) during the three months
ended June 30, 1999. This increase is attributable to the Company's previously
noted increase in its various operating expenses and professional fees.
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
The Company had minimal cash capital at the end of the three months
ended June 30, 2000 as well as for the comparable period ended June 30, 1999.
The Company will be forced to either borrow funds or to sell shares of its
common stock in order to fund operations. Historically, the Company has financed
its working capital requirements through internally generated funds, that is,
through the sale of shares of its common stock, and proceeds from short-term
bank and other borrowings. The Company currently has a note with one stockholder
in the outstanding principal amount of $511,000 which bears interest at nine
(9%) percent per annum. The Company has a note with another stockholder in the
outstanding principal amount of $851,271 which bears interest at nine (9%)
percent per annum. During the three months ended June 30, 2000, the Company
settled a note payable of $56,000 for $29,000.
As of June 30, 2000, the Company had cash capital of $11,563 as
compared with cash capital of $4,104 for the comparable period ended June 30,
1999.
The Company currently anticipates existing sources of liquidity and
cash to be insufficient to satisfy its operational needs through the next nine
months. To make future acquisitions or for other forthcoming similar expenses,
the Company may seek to increase the amount of its credit facilities, negotiate
additional credit facilities or issue corporate debt or equity securities. Any
debt incurred or issued by the Company may be secured or unsecured, fixed or
variable rate interest and may be subject to such terms as the Board of
Directors of the Company deems prudent. The Company expects any proceeds from
such additional credit or sales of securities to be used primarily in the
development and marketing of its products. No assurances can be given that the
Company will be successful in obtaining any additional credit facilities or in
generating sufficient capital from the sale of its securities to adequately fund
its operational needs.
The Company does not believe that its business is subject to seasonal
trends.
The Company does not believe that inflation had a significant impact on
the Company's results of operations for the period presented. On an ongoing
basis, the Company attempts to minimize any effects of inflation on its
operating results by controlling operating costs, and, whenever possible,
seeking to insure that product price rates reflect increases in costs due to
inflation.
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in the section captioned Management's
Discussion and Analysis of Financial Condition and Results of Operations which
are not historical are "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-looking statements
represent the Company's present expectations or beliefs concerning future
events. The Company cautions that such forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
uncertainty as to the Company's future profitability; the ability to hire, train
and retain sufficient qualified personnel; the ability to obtain financing on
acceptable terms to finance the
<PAGE> 16
Company's growth strategy; and the ability to develop and implement operational
and financial systems to manage the Company's growth.
New Accounting Pronouncements
No new pronouncement issued by the Financial Accounting Standards
Board, the American Institute of Certified Public Accountants or the Securities
and Exchange Commission is expected to have a material impact on the Company's
financial position or reported results of operations.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
THE HYDROGIENE CORPORATION, a Florida Corporation, vs. AMERICAN BIDET COMPANY, a
Florida Corporation, doing business as Mr. Bidet, Continental Bidet and/or US
Bidet and ARNOLD COHEN, individually and doing business as Bidet Products
Consumer Reports and DOES 1 through 100, inclusive.
United States District Court, Southern District of California, Case No. 00 CV
0839 H. This action was commenced on April 25, 2000 by the Company filing a
Complaint For Trademark Infringement, Unfair Competition, Defamation, and
Preliminary and Permanent Injunction arising from defendants improper use of the
trade name "Hydrogiene" on two websites and slanderous statements made on those
websites. Relief sought - damages and injunction.
G. KRISHNA KUMAR, M.D., individually, and as Trustee for the KUMAR PENSION TRUST
vs. HYDROGIENE CORPORATION, a Florida corporation, and CHARLES KALLMANN. State
of Michigan, Circuit Court for the County of Oakland, Case 00-021462-CK. The
action commenced on March 8, 2000. This is an action against Hydrogiene and
Kallmann for alleged breach of an agreement to issue unrestricted stock. Causes
of action have been alleged for breach of contract, fraud, and innocent
misrepresentation. Relief sought - damages.
BRITISH FAR EAST HOLDINGS, LTD., a Delaware corporation vs. THE HYDROGIENE
CORPORATION, a Florida corporation, and DOES 1 through 10, inclusive. Superior
Court of California, County of San Diego, Case No.727621. Action commenced in
1998. Action against Hydrogiene for alleged breach of contract. Hydrogiene
conceded it owed $18,000 plus issuance of certain stock to plaintiff and offered
same. The action went to trial in January, 2000. Plaintiff received the amount
previously offered by defendant. Plaintiff has not entered formal judgment.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
See Consolidated Financial Statements.
ITEM 5. OTHER INFORMATION
PURCHASE OF UNIQUE FORMULAS, PROCESSES AND TRADEMARKS FOR USE WITH THE
COMPANY'S PRODUCTS
<PAGE> 17
Through a wholly owned subsidiary being formed, the Company plans to
purchase certain formulas, processes and trademarks for use in connection with
the manufacture and sale of a new line of beauty and skin care products, which
the Company believes are compatible with its Theraclenze and Mediclenze
products. The trademarks associated with the formulas and processes are well
recognizable. Such formulas and processes are unique and the Company believes
that such formulas, processes and trademarks will enable the Company to market
its Theraclenze and Mediclenze and other products more successfully. The Company
anticipates that the cost of such formulas, processes and trademarks will be in
excess of $3 million and that the purchase will not be completed until some time
in the future after the Company has thoroughly tested and evaluated the formulas
and processes.
LICENSING AGREEMENT WITH LIFEQUEST, INC.
In a transaction related to the acquisition of formulas, processes and
trademarks, the Company has entered into a Licensing Agreement with LifeQuest,
Inc., a Utah corporation ("LifeQuest"). In accordance with the terms of the
Licensing Agreement, the Company will test and evaluate the formulas and
processes prior to acquiring an exclusive worldwide license with LifeQuest.
PURCHASE OF BUILDING FOR ASSEMBLY OF PRODUCTS
Through one of its subsidiaries, the Company plans to purchase a commercial
building in Orem, Utah in the fourth quarter of 2000 which will house its
cosmetics and skin care products manufacturing operations. The Company expects
the purchase price to be approximately $720,000.
NATIONAL BROKERS & DISTRIBUTORS
The Company intends to complete its acquisition of National Brokers &
Distributors from National Capital Companies by the end of the third quarter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this Form 10-QSB:
2 Amended and Restated Articles of Incorporation and Bylaws of The
Hydrogiene Corporation (f/k/a High Climbers, Inc.), is
incorporated by reference from the Company's 8-K/A report filed
with the SEC on February 25, 2000.
3.1 Form of Common Stock Purchase Warrants with Seascape Management
Company, LLC, Fern Stotsenberg, Bradley Gardner, Aerial Gardner,
Gregory Gardner and Philip Gardner, is incorporated by reference
from the Company's Form 10-KSB filed with the SEC on April 14,
2000.
3.2 Form of Warrant to Purchase Common Stock, with Evergreen
Financial Services, Inc., dated August 25, 1998, is incorporated
by reference from the Company's Form 10-KSB filed with the SEC on
April 14, 2000.
<PAGE> 18
6.1 License Agreement dated August 21, 1997, as amended on September
1, 1997, is incorporated by reference from the Company's Form
10-KSB filed with the SEC on April 14, 2000.
6.2 Hydrogiene Employment Contract dated October 1997 with Charles
Kallmann, is incorporated by reference from the Company's Form
10-KSB filed with the SEC on April 14, 2000.
6.3 Hydrogiene Stock Option Agreement dated August 11, 1999 with
Charles Kallmann, is incorporated by reference from the Company's
Form 10-KSB filed with the SEC on April 14, 2000.
6.4 Hydrogiene Stock Option Agreement dated August 11, 1999 with
Michael Brette, is incorporated by reference from the Company's
Form 10-KSB filed with the SEC on April 14, 2000.
27.1 Financial Data Schedule (electronically filed herewith).
(b) REPORTS ON FORM 8-K
No Reports on Form 8-K were filed during the period ended June 30,
2000.
<PAGE> 19
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
The Hydrogiene Corporation
A Florida corporation
(Registrant)
Date: August 21, 2000 /s/ Charles W. Kallmann
---------------------------
Charles W. Kallmann
Chief Executive Officer
Date: August 21, 2000 /s/ Charles W. Kallmann
---------------------------
Charles W. Kallmann
Chief Accounting Officer
