U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 02-23729
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HYDROMAID INTERNATIONAL, INC.
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(Exact name of Small Business Issuer in its Charter)
NEVADA 87-0575839
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(State or Other Jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)
1350 E. Draper Parkway
Draper, Utah 84020
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(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 X No (2) Yes X No
--- --- --- ---
(APPLICABLE ONLY TO CORPORATE ISSUERS)
State the number of shares outstanding of each of the Issuer's classes
of common equity, as of the latest practicable date:
April 15, 2001: Common Stock - 26,924,538 shares
DOCUMENTS INCORPORATED BY REFERENCE
Transitional Small Business Issuer Format Yes No X
HYDROMAID INTERNATIONAL, INC.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION 3
Item 1. Condensed Financial Statements: 3
Condensed Balance Sheets as of March 31, 2001 (unaudited) and December 31, 2000 (audited) 4
Unaudited Condensed Statements of Operations for the Three-month Periods Ended
March 31, 2001 and March 31, 2000. 5
Unaudited Condensed Statements of Cash Flows for the Three-month Periods Ended
March 31, 2001 and March 31, 2000. 6
Notes to Unaudited Condensed Financial Statements for the Three-month Periods
Ended March 31, 2001 and March 31, 2000. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 12
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The Unaudited 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 Unaudited 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, 2000
previously filed with the Securities and Exchange Commission.
3
HYDROMAID INTERNATIONAL, INC.
CONDENSED BALANCE SHEETS
MARCH 31, 2001 (UNAUDITED) AND DECEMBER 31, 2000 (AUDITED)
MARCH 31, 2001 DECEMBER 31, 2000
(UNAUDITED) (AUDITED)
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ASSETS
CURRENT ASSETS
CASH $ 68,940 $ 711,904
ACCOUNTS RECEIVABLE 551,539 621,208
NOTES RECEIVABLE 1,325,000 1,325,000
INVENTORY, NET 953,228 974,206
PREPAID EXPENSES AND OTHER ASSETS 766,125 798,845
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TOTAL CURRENT ASSETS 3,664,832 4,431,163
PROPERTY AND EQUIPMENT, NET 768,615 804,415
PATENTS, NET 142,365 85,183
ADVANCES TO RELATED PARTIES 387,172 303,833
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TOTAL ASSETS $ 4,962,984 $ 5,624,594
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 406,642 $ 372,983
STOCKHOLDERS' EQUITY
COMMON STOCK, par value $.001/share,
30,000,000 shares authorized 26,925 26,915
03/31/2001: 26,924,538 outstanding
12/31/2000: 26,914,538 outstanding
ADDITIONAL PAID-IN CAPITAL 18,277,040 18,274,550
SUBSCRIPTIONS, STOCK OPTIONS AND DEFERRED
COMPENSATION (103,182) (131,576)
ACCUMULATED DEFICIT (13,644,441) (12,918,278)
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TOTAL STOCKHOLDERS' EQUITY 4,556,342 5,251,611
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,962,984 $ 5,624,594
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED FINANCIAL
STATEMENTS
4
HYDROMAID INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2001 AND 2000
UNAUDITED
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
2001 2000
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REVENUES
SALES $ 55,148 $ 94,505
LESS RETURNS AND ALLOWANCES (7,279) (10,025)
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47,869 84,480
COST OF SALES 20,979 26,804
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GROSS PROFIT 26,890 57,676
OPERATING EXPENSES
SELLING AND DISTRIBUTION EXPENSES 294,719 323,623
GENERAL AND ADMINISTRATIVE EXPENSES 405,362 822,708
RESEARCH AND DEVELOPMENT 85,660 43,624
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785,741 1,189,955
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LOSS BEFORE INTEREST INCOME AND INCOME
TAX BENEFIT (758,851) (1,132,279)
INTEREST INCOME 32,688 62,415
INCOME TAX BENEFIT - -
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NET (LOSS) $ (726,163) $(1,069,864)
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BASIC AND DILUTED LOSS PER SHARE $ (0.03) $ (0.04)
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED FINANCIAL
STATEMENTS
5
HYDROMAID INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2001 AND 2000
UNAUDITED
THREE MONTHS THREE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (726,163) $(1,069,864)
Adjustments to reconcile net (loss)
to net cash used by operating
activities:
Depreciation and amortization 65,773 49,124
Stock option and grant expense 28,394 316,640
Changes in operating assets and
liabilities:
Accounts receivable 69,669 34,973
Inventory 20,979 (45,421)
Prepaid expenses and other assets 32,720 (197,861)
Accounts payable and accrued expenses 33,658 (226,116)
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NET CASH (USED) BY OPERATING ACTIVITIES (474,970) (1,138,525)
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CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment (25,742) (171,804)
Acquisition of patents (61,413) (11,588)
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NET CASH (USED) BY INVESTING ACTIVITIES (87,155) (183,392)
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CASH FLOWS FROM FINANCING ACTIVITIES
Advances from related party (83,339) (51,887)
Proceeds from issuance of common stock - 3,357,322
Proceeds from exercise of stock options 2,500 -
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NET CASH PROVIDED BY (USED BY) FINANCING
ACTIVITIES (80,839) 3,305,435
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NET (DECREASE) INCREASE IN CASH (642,964) 1,983,518
CASH AT BEGINNING OF PERIOD 711,904 2,901,758
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CASH AT END OF PERIOD $ 68,940 $ 4,885,276
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED FINANCIAL
STATEMENTS
6
HYDROMAID INTERNATIONAL, INC.
Notes to the Unaudited Condensed Financial Statements
For the Three-month Periods Ended March 31, 2001 and March 31, 2000.
1. NATURE OF BUSINESS, REORGANIZATION AND BASIS OF PRESENTATION
NATURE OF BUSINESS
HydroMaid International, Inc. (the "Company") was incorporated in 1992 in the
State of Nevada and engages in the development, manufacture, and sale of a
patented water-powered garbage disposal known as the HydroMaid(R) (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.
AGREEMENT WITH GENERAL ELECTRIC
On March 10, 2000, the Company entered into a non-binding Letter of Intent
with the Appliance Division of General Electric Company ("GEA") under which
GEA may obtain exclusive distribution rights to the Hydromaid(R) in the
United States and Canada through October 31, 2003. The mutual exploration
being conducted under this Letter of Intent was terminated on April 19, 2001.
BASIS OF PRESENTATION
The Company has prepared its condensed financial statements for the
three-month periods ended March 31, 2001 and 2000 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, 2001 and for the three-month
periods ended March 31, 2001 and 2000 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 accounting principles generally
accepted in the United States ("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 2000 filed with the Securities and
Exchange Commission.
7
The results of operations for the three-month periods ended March 31, 2001
and 2000 are not necessarily indicative of the results to be expected for the
full year.
Certain amounts in the 2000 financial statements have been reclassified to
conform to their 2001 presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
For the three-month period ended March 31, 2001, the Company adopted
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and hedging activities" ("SFAS 133"), as amended.
Since the Company does not presently engage in activities covered by SFAS
133, there was no significant effect on the Company's March 31, 2001 financial
statements.
2. NOTES RECEIVABLE
In August 2000, the Company loaned $500,000 to an unrelated party in the
water filtration business. The loan is evidenced by an unsecured note
receivable maturing August 7, 2001 and bearing interest at 12% per annum.
Interest is payable monthly, and such payments were delinquent as of March
31, 2001. Subsequent to March 31, 2001 interest payments have been brought
current and, as of the date of this filing, approximately $260,000 of the
principal has been retired. Further, Culley W. Davis, CEO of the Company, has
agreed to personally guarantee the remaining obligation under this note.
The Company issued a $300,000 note receivable on November 8, 2000 to
Lighthouse, Inc., a related party. The note bears interest at the rate of
6.2% per annum; principal and unpaid interest are due November 8, 2001.
Accrued interest receivable on this note approximated $7,200 at March 31,
2001.
On December 20, 2000, the Company issued a $525,000 note receivable to
Liquitek Enterprises, Inc. ("Liquitek"), a related party. The note bears
interest at the rate of 6.2% per annum; principal and unpaid interest were
due March 31, 2001, but are delinquent as of the date of this filing.
Liquitek is seeking financing on the real property obtained with these funds
and plans to pay off this note with the proceeds from this financing.
Liquitek has agreed to grant the Company a deed of trust as security for this
note. Accrued interest receivable on this note approximated $9,000 at March
31, 2001.
3. STOCK OPTIONS EXERCISED
On February 5, 2001, 10,000 shares were issued upon exercise of an option
granted under the Company's 1997 Stock Option Plan. The exercise price was
$0.25 per share.
Subsequent to March 31, 2001, 66,667 shares were issued to Ronald L. LaFord,
the Company's former President, upon his exercising an option granted to him
under the Company's 1997 Stock Option Plan. The exercise price was $0.25 per
share.
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4. INCOME TAXES
Using the liability method required by Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes," the estimated tax
effects of temporary differences between financial and income tax reporting
are recorded in the period in which the events occur. Such differences
between the financial and tax bases of assets and liabilities result in
future tax deductions or taxable income.
Based on management's best estimate of taxable income in the foreseeable
future, it is more likely than not that some portion of deferred income tax
assets, due mostly to net operating loss carryforwards, may not be realized.
As such, management has provided 100% allowances against the deferred tax
asset and deferred tax benefit as of and for the periods ended March 31, 2001
and 2000.
5. COMMITMENTS AND CONTINGENCIES
At March 31, 2001, the Company had outstanding commitments of approximately
$1,925,000 to purchase finished goods from a vendor in China. The vendor has
agreed to suspend production of certain units representing approximately
$1,650,000 of such commitment. The Company has indemnified the vendor in the
amount of approximately $670,000 for any loss that may result from
vendor-owned components if such inventory becomes obsolete due to a change in
the Product's design.
6. LIQUIDITY CONSIDERATIONS
As discussed in Note 1, the Company manufactures and markets the HydroMaid(R)
water-powered garbage disposal. Since the introduction of the HydroMaid(R) 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, 2001 was approximately $475,000 on sales
of approximately 350 units. Management believes that the Company will have
sufficient cash to meet its obligations for the next 12 months based upon the
March 31, 2001 cash balance, collection of accounts and notes receivable, and
sales of existing inventory aggregating approximately $1,950,000. Management
anticipates that additional cash will be required soon thereafter, which
management intends to raise through future private offerings of the Company's
common stock.
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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 quarters
ended March 31, 2001 and 2000 were 26,920,538 and 26,819,669, respectively.
As more fully described in the notes to the audited financial statements in
the Company's annual report on Form 10-KSB for 2000, securities that could
potentially dilute basic loss per share in the future were not included in
the diluted-loss-per-share computation because their effect is antidilutive.
8. CONCENTRATION OF CREDIT RISK
At March 31, 2001, one international customer accounted for approximately 56%
of accounts receivable. The customer maintains a good payment history with
the Company and was within current credit terms.
10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
Net sales for the three months ended March 31, 2001 were $47,869 compared to
$84,480 for the comparable period in 2000. Cost of sales decreased to $20,979
compared to $26,804 for the comparable period in 2000.
The gross profit margin decreased from 68% for the three months ended March
31, 2000 to 56% for the comparable period in 2001. This decrease is due to
increased component cost as a result of design changes implemented subsequent
to March 31, 2000. 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 $785,741 for the three months ended March 31, 2001
compared to $1,189,955 for the comparable period in 2000. The decrease is
attributable to lower compensation expense in 2001 for services provided by
Steve Young as a Director and consultant. Further, more of the compensation
of employees being shared with related parties was borne by those other
companies in 2001.
The Company experienced a net loss before interest income and income tax
benefit and corresponding net loss per share of $758,851 and $0.03,
respectively, for the three months ended March 31, 2001, compared to a net
loss before interest income and income tax benefit and net loss per share of
$1,132,279 and $0.04, respectively, for the comparable period in 2000.
LIQUIDITY
As of March 31, 2001, the Company had $68,940 in cash, $551,539 in Accounts
Receivable and $1,325,000 in Notes Receivable due before the end of 2001. The
Company's operating cash flow deficit for the three-month period ended March
31, 2001 was approximately $475,000. Management believes that the Company
will have sufficient cash to meet its obligations for the next 12 months
based upon the current cash balance, collection of accounts and notes
receivable and sales from existing inventory. Management does not anticipate
needing to raise any additional capital to fund operations during the next 12
months, but does expect such need to arise soon thereafter. Management
believes this need will be met by further private offerings of the Company's
Common Stock.
SUBSEQUENT EVENTS
On April 19, 2001 the joint development agreement between the Company and
General Electric Appliances ("GEA") expired. The two companies have no plans
to move forward with the exclusive distribution rights of the HydroMaid(R)
product in North America by GEA.
As of the date of filing this Form 10-QSB report, the Note Receivable in the
amount of $500,000 from an unrelated party for which interest payments were
delinquent at March 31, 2001 has been personally guaranteed by Culley W.
Davis, CEO of the Company. Interest payments have been brought current and
approximately $260,000 of the principal has been retired.
11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
On February 5, 2001, 10,000 shares were issued upon exercise of an option
granted under the Company's 1997 Stock Option Plan. The exercise price was
$0.25 per share.
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.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
HYDROMAID INTERNATIONAL, INC.
Date: 05/15/01 BY:/s/ CULLEY W. DAVIS
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President and Director
Date: 05/15/01 BY:/s/ JOHN W. NAGEL
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Chief Financial Officer and
Director
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