U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the quarterly period ended March 31, 2002 |
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o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from to |
Commission File No. 02-23729
HYDROMAID INTERNATIONAL, INC.
(Exact name of Small Business Issuer in its Charter)
NEVADA |
| 87-0575839 |
(State or Other Jurisdiction of |
| (I.R.S. Employer I.D. No.) |
incorporation or organization) |
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1350 E. Draper Parkway
Draper, Utah 84020
(Address of Principal Executive Offices)
Issuer’s Telephone Number: (801) 553-8790
Not applicable.
(Former name, former address and former fiscal year, if changed since last report):
Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
(1) Yes ý No o (2) Yes ý No o
(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:
May 17, 2002: Common Stock — 26,974,538 shares
DOCUMENTS INCORPORATED BY REFERENCE
Transitional Small Business Issuer Format Yes o No ý
HYDROMAID INTERNATIONAL, INC.
TABLE OF CONTENTS
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Condensed Balance Sheets as of March 31, 2002 (un-audited) and December 31, 2001 (audited) |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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PART I — FINANCIAL INFORMATION
All statements, other than statements of historical fact, included in this Form 10-QSB, including the statements under “Management’s Discussion and Analysis,” are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Such forward-looking statements involve assumptions, known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance, or achievements expressed or implied by such statements contained in this Form 10-QSB. Such potential risks and uncertainties include, without limitation, competitive technology advancements and other pressures from competitors, economic conditions generally and in our research and development efforts, availability of capital, cost of labor (foreign and domestic), cost of raw materials, occupancy costs, and other risk factors detailed herein and in our filings with the Securities and Exchange Commission. We assume no obligation to update the forward-looking statements or to update the reasons actual results could differ from those projected in such statements. Readers are cautioned not to place undue reliance on these forward-looking statements.
Item 1. Financial Statements.
The Un-audited Condensed Financial Statements of the Company required to be filed with this 10-QSB Quarterly Report were prepared by management and commence on the following page, together with related Notes. In the opinion of management, these Un-audited Condensed Financial Statements fairly present the financial condition of the Company, but should be read in conjunction with the Audited Financial Statements of the Company for the year ended December 31, 2001 previously filed with the Securities and Exchange Commission.
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HYDROMAID INTERNATIONAL, INC.
March 31, 2002 and December 31, 2001
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| March 31, 2002 |
| December 31, 2001 |
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| (Audited) |
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ASSETS |
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Current Assets |
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Cash |
| $ | 2,485 |
| $ | 47,560 |
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Accounts receivable, net |
| 68,736 |
| 69,431 |
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Inventory, current portion |
| 40,658 |
| 43,785 |
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Prepaid expenses and other assets |
| 15,604 |
| 14,694 |
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Total Current Assets |
| 127,483 |
| 175,470 |
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Property and equipment, net |
| 535,567 |
| 598,567 |
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Patents, net |
| 105,324 |
| 107,015 |
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Inventory, net of current portion |
| 692,110 |
| 726,014 |
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Advances to Foreign Contractor |
| 645,052 |
| 645,052 |
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TOTAL ASSETS |
| $ | 2,105,536 |
| $ | 2,252,118 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current Liabilities |
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Accounts payable and accrued expenses |
| $ | 648,485 |
| $ | 552,724 |
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Accrued Product Warranty |
| 460,000 |
| 460,000 |
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Stockholders' Equity |
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Common stock, par value $.001/ share, 40,000,000 shares authorized 03/31/2002: 26,974,538 outstanding |
| 26,975 |
| 26,975 |
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Additional paid-in capital |
| 18,276,990 |
| 18,276,990 |
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Subscriptions, stock options and deferred compensation |
| (18,000 | ) | (18,000 | ) | ||
Accumulated deficit |
| (17,288,914 | ) | (17,046,571 | ) | ||
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Total stockholders' equity |
| 997,051 |
| 1,239,394 |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
| $ | 2,105,536 |
| $ | 2,252,118 |
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The accompanying notes are an integral part of these financial statements.
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HYDROMAID INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
For the Three-month Periods Ended March 31, 2002 and 2001
Unaudited
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| Three Months |
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Revenues |
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Sales |
| $ | 92,950 |
| $ | 55,148 |
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Less returns and allowances |
| (1,059 | ) | (7,279 | ) | ||
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| 91,891 |
| 47,869 |
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Cost of sales |
| 36,843 |
| 20,979 |
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Gross profit |
| 55,048 |
| 26,890 |
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Operating expenses |
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Selling and distribution expenses |
| 59,053 |
| 294,719 |
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General and administrative expenses |
| 169,958 |
| 405,362 |
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Research and development |
| 72,967 |
| 85,660 |
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| 301,978 |
| 785,741 |
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Loss before interest and taxes |
| (246,930 | ) | (758,851 | ) | ||
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Interest income |
| 4,587 |
| 32,688 |
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Income tax benefit |
| — |
| — |
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Net (loss) |
| $ | (242,343 | ) | $ | (726,163 | ) |
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Basic and diluted loss per share |
| $ | (0.01 | ) | $ | (0.03 | ) |
The accompanying notes are an integral part of these financial statements.
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HYDROMAID INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
For the Three-month Periods Ended March 31, 2002 and 2001
Unaudited
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CASH FLOWS FROM OPERATING ACTIVITIES |
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Net (loss) |
| $ | (242,343 | ) | $ | (726,163 | ) |
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Adjustments to reconcile net (loss) to net cash used by operating activities: |
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Depreciation and amortization |
| 66,228 |
| 65,773 |
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Stock option and grant expense |
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| 28,394 |
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Changes in operating assets and liabilities: |
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Accounts receivable |
| 695 |
| 69,669 |
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Inventory |
| 37,031 |
| 20,979 |
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Prepaid expenses and other assets |
| (909 | ) | 32,720 |
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Accounts payable and accrued expenses |
| 82,209 |
| 33,658 |
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Net cash (used) by operating activities |
| (57,089 | ) | (474,970 | ) | ||
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CASH FLOWS FROM INVESTING ACTIVITIES |
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Acquisition of property and equipment |
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| (25,742 | ) | ||
Patent costs |
| (1,538 | ) | (61,413 | ) | ||
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Net cash (used) by investing activities |
| (1,538 | ) | (87,155 | ) | ||
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CASH FLOWS FROM FINANCING ACTIVITIES |
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Advances from (to) related party |
| 13,552 |
| (83,339 | ) | ||
Proceeds from exercise of stock options |
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| 2,500 |
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Net cash provided (used) by financing activities |
| 13,552 |
| (80,839 | ) | ||
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NET (DECREASE) IN CASH |
| (45,075 | ) | (642,964 | ) | ||
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CASH AT BEGINNING OF PERIOD |
| 47,560 |
| 711,904 |
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CASH AT END OF PERIOD |
| $ | 2,485 |
| $ | 68,940 |
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The accompanying notes are an integral part of these financial statements.
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HYDROMAID INTERNATIONAL, INC.
Notes to the Un-audited Condensed Financial Statements
For the Three-month Periods Ended March 31, 2002 and March 31, 2001.
1. NATURE OF BUSINESS, REORGANIZATION AND BASIS OF PRESENTATION
Nature of Business
HydroMaid International, Inc. (the “Company”) was incorporated in 1992 in the State of Nevada and engages in the development, manufacture, and sale of a patented water-powered garbage disposal known as the HydroMaidâ (the “Product”). Technological improvements and field-testing were completed in 1997, and the Product was introduced to the market in 1998. The Company is presently engaged in improving the Product to achieve universal compliance with plumbing codes and to enhance the overall quality and performance of the Product. The Company intends to market the Product worldwide. The Company operates from a leased facility near Salt Lake City, Utah. One contractor in China performs the majority of the Company’s manufacturing.
Basis of Presentation
The Company has prepared its condensed financial statements for the three-month periods ended March 31, 2002 and 2001 without audit by the Company’s independent auditors. In the opinion of management, all adjustments necessary to present fairly the financial position, results of operations, and cash flows of the Company as of March 31, 2002 and for the three-month periods ended March 31, 2002 and 2001 have been made. Such adjustments consist only of normal recurring adjustments.
Certain note disclosures normally included in the Company’s annual financial statements prepared in accordance with GAAP have been condensed or omitted. The accompanying condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Form 10-KSB annual report for 2001 filed with the Securities and Exchange Commission.
The results of operations for the three-month periods ended March 31, 2002 and 2001 are not necessarily indicative of the results to be expected for the full year.
Certain amounts in the 2001 financial statements have been reclassified to conform to their 2002 presentation.
2. RECENT ACCOUNTING PRONOUNCEMENTS
Recent accounting pronouncements discussed in the notes to the December 31, 2001 and 2000 audited financial statements filed previously with the Securities and Exchange Commission in Form 10-KSB that were required to be adopted in the quarter ended March 31, 2002 did not have a significant impact on the Company's financial statements.
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3. INVENTORY
Inventory consists of the following at March 31, 2002 and December 31, 2001:
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| March 31, 2002 |
| December 31, 2001 |
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Components |
| $ | 195,447 |
| $ | 195,447 |
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Finished goods, current portion |
| 40,658 |
| 43,785 |
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Finished goods, net of current portion |
| 692,110 |
| 726,014 |
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| 928,215 |
| 965,246 |
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Less valuation allowance |
| (195,447 | ) | (195,447 | ) | ||
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| $ | 732,768 |
| $ | 769,799 |
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4. ADVANCES TO RELATED PARTIES
Lighthouse, Inc. and Liquitek Enterprises, Inc. reimburse the Company for certain allocated administrative expenses. These expenses have generally consisted of salaries and related benefits paid to Company personnel who perform services for Lighthouse, Inc. and Liquitek Enterprises, Inc. Allocations of personnel costs have been based primarily on actual time spent by Company employees; management believes that such allocation method is reasonable. Amounts charged to Lighthouse, Inc. and Liquitek Enterprises, Inc. have directly offset the Company’s operating expenses by approximately $5,000 and $105,000 for the quarters ended March 31, 2002 and 2001, respectively.
The Company reimburses Lighthouse, Inc. for certain allocated overhead expenses related to its rented office space. The Company nets the amount charged by Lighthouse, Inc. against the amounts charged for administrative expenses described in the preceding paragraph.
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Lighthouse, Inc. charged approximately $5,500 and $8,500, respectively, to the Company for allocated overhead for the Quarter ended March 31, 2002 and 2001.
On December 31, 2001, the Company, Lighthouse, Inc. and Liquitek Enterprises, Inc. agreed that Liquitek Enterprises, Inc. would assume the responsibility for the total Lighthouse, Inc. obligation to the Company in consideration for Liquitek Enterprises, Inc. being relieved of its obligation to Lighthouse, Inc. The net effect of this transaction was to eliminate Lighthouse, Inc. from any obligation to the Company as of December 31, 2001 and resulted in a total related party receivable from Liquitek Enterprises, Inc. of $709,870. During the quarter ended March 31, 2002, Liquitek Enterprises, Inc. incurred an additional $9,460 in allocated operating expenses and accrued interest making the total receivable balance from Liquitek Enterprises, Inc. approximately $719,333. The Company’s management believes that this receivable will be collected in the future from Liquitek Enterprises, Inc. However, the Company has reserved $709,870 as a doubtful account because substantial doubt exists as to Liquitek Enterprises, Inc.’s ability to continue as a going concern. The balance of this receivable at March 31, 2002 is included in Prepaid expenses and other assets on the accompanying condensed balance sheet.
5. COMMITMENTS AND CONTINGENCIES
At March 31, 2002, the Company had outstanding commitments of approximately $1,925,000 to purchase finished goods from its contractor in China. Due to the Company’s current financial condition, the contractor has agreed to suspend production of certain units representing approximately $1,650,000 of such commitment. The Company has indemnified the contractor in the amount of approximately $645,000 for any loss that may result from contractor-owned components if such inventory becomes obsolete due to a change in the product’s design. The indemnification has been made in the form of a cash deposit to the contractor, included on the accompanying balance sheets as advances to foreign contractor. The contractor has agreed that when production resumes, a credit of approximately $18 will be applied against the cost of each unit shipped to the Company. Management believes that such deposit will be fully realized in the future. It is reasonably possibly that management’s estimate of the realization of this deposit will change in the near term. Since the accompanying financial statements have been prepared assuming the Company will continue as a going concern, management has assumed amortization of this non-refundable cash deposit in the ordinary course of business.
6. LIQUIDITY CONSIDERATIONS
As discussed in Note 1, the Company manufactures and markets the HydroMaid® water-powered garbage disposal. Since the introduction of the HydroMaid® to the marketplace in 1998, sales have not been sufficient to provide positive operating cash flow. The Company’s operating cash flow deficit for the three-month period ended March 31, 2002 was approximately $57,000. Management anticipates, based on the cash balance, ongoing sales, collection of receivables, and collection of amounts due from Liquitek Enterprises, Inc., to provide for the short-term operating needs of the company until permanent equity financing can be realized. The Company expects to raise additional capital through a private placement equity offering during 2002 to fund further development of present and anticipated operations.
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7. LOSS PER COMMON SHARE
Loss per common and common equivalent share is based on the weighted average number of shares of common stock and potential common stock outstanding during the period in accordance with Statement of Financial Accounting Standards No. 128, “Earnings per Share.”
The weighted average number of common shares outstanding for the three-month periods ended March 31, 2002 and 2001 were 26,974,538 and 26,920,538, respectively.
As more fully described in the notes to the audited financial statements in the Company’s annual report on Form 10-KSB for 2001, securities that could potentially dilute basic loss per share in the future were not included in the diluted-loss-per-share computation because their effect is anti-dilutive.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Net sales for the three-month period ended March 31, 2002 were $92,950 compared to $55,148 for the comparable period in 2001. This increase is due to three initial orders from international distributors in Malaysia, Russia and Japan.
The gross profit margin increased from 56% for the three months ended March 31, 2001 to 60% for the comparable period in 2002. The Company anticipates its gross margin will fluctuate in this approximate range until product designs stabilize and volume sales begin to be realized.
Operating expenses were $301,978 for the three-month period ended March 31, 2002 compared to $785,741 for the comparable period in 2001. As a result of the lack of operating capital, efforts were made to decrease spending across the board in all categories including rents, salaries & wages, postage, communications, etc. Also, the Company did not attend a major industry trade show during the quarter ended March 31, 2002 as it did during the comparable period in 2001, a savings of approximately $180,000.
The Company experienced a net loss before interest income and income tax benefit and corresponding net loss per share of $246,930 and $0.01, respectively, for the three-month period ended March 31, 2002, compared to a net loss before interest income and income tax benefit and net loss per share of $758,851 and $0.03, respectively, for the comparable period in 2001.
Liquidity
As of March 31, 2002, the Company had approximately $2,500 in cash, $70,000 in accounts receivable, and a related party receivable from Liquitek Enterprises, Inc. of $719,333, of which $709,870 was reserved for as a “doubtful” account. Management has aggressively reduced expenses in anticipation of the cash shortage, and believes Liquitek Enterprises, Inc. will be successful in its capital development and
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operating efforts or liquidation of assets in order to pay the Company the $719,000 receivable balance. Management anticipates, based on the cash balance, ongoing sales, collection of receivables, and collection of amounts due from Liquitek Enterprises, Inc., to provide for the short-term operating needs of the company until permanent equity financing can be realized. The Company expects to raise additional capital through a private placement equity offering during 2002 to fund further development of present and anticipated operations until the Company can accomplish self-sustaining cash flows.
The Company has been successful in its efforts to expand international distribution channels. These efforts have included development of distribution agreements for the HydroMaid® in many countries throughout the world including: the United Kingdom, South Africa, Poland, Czech Republic, Hungary, Malaysia, Singapore, Indonesia, Thailand, Russia and Lithuania. Additionally, the Company is pursuing agreements for Canada, Australia, New Zealand, China, Japan, Taiwan and others. Due to the successful marketing efforts in the International arenas, the Company’s management anticipates demand for the HydroMaid® to grow substantially internationally.
The Company’s engineering efforts have resulted in a finished design for the Atmospheric anti-siphon valve, as well as, a redesign of the Piston U-cup Seal. The Company is awaiting the additional funding to complete the projects and begin the manufacturing process for these component parts. Management expects once these two projects are completed that the HydroMaid® will meet general plumbing standards, significantly reduce returns, and greatly enhance both international and domestic sales.
Subsequent Events
None.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.*
None.
(b) Reports on Form 8-K.
None.
* A summary of any Exhibit is modified in its entirety by reference to the actual Exhibit.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
| HYDROMAID INTERNATIONAL, INC. |
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Date: 05/17/02 | By: /s/ Mark S. Brewer |
| Vice President and Director |
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Date: 05/17/02 | By: /s/ Daron H. Smith |
| Controller |
| (Principal Accounting Officer) |
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