UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the Quarterly Period Ended: MARCH 31, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 For the Period from __________ to __________
Commission File Number: 0-6333
HYDRON TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
NEW YORK 13-1574215
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1001 YAMATO ROAD, SUITE 403, BOCA RATON, FLORIDA 33431
- ------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (561) 994-6191
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
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. Yes [X] No [ ]
Number of shares of common stock outstanding as of May 12, 1999: 4,910,136
Page 1 of 16
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HYDRON TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets -- March 31, 1999 and December 31, 1998
Condensed consolidated statements of operations -- Three months ended March
31, 1999 and 1998
Condensed consolidated statements of cash flows -- Three months ended March
31, 1999 and 1998
Notes to condensed consolidated financial statements -- March 31, 1999
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Page 2 of 16
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<TABLE>
<CAPTION>
HYDRON TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,212,130 $ 2,127,781
Trade accounts receivable 221,473 428,817
Inventories 1,659,858 1,751,353
Prepaid expenses and other
current assets 86,529 72,610
------------ ------------
Total current assets 4,179,990 4,380,561
Property and equipment, net 461,831 550,773
Investment in joint venture 56,403 53,534
Deferred product costs, less
accumulated amortization of
$4,696,135 and $4,623,451 at
1999 and 1998, respectively 1,278,294 1,350,978
Deposits 257,783 305,587
------------ ------------
$ 6,234,301 $ 6,641,433
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 326,367 $ 261,581
Accrued liabilities 387,569 405,281
------------ ------------
Total current liabilities 713,936 666,862
Shareholders' equity:
Common stock -- $.01 par value;
30,000,000 shares authorized;
4,960,336 shares issued; and
4,910,136 shares outstanding 49,603 49,603
Additional paid-in capital 19,429,931 19,429,931
Accumulated deficit (13,527,824) (13,073,618)
Treasury Stock, at cost; 50,200 shares (431,345) (431,345)
------------ ------------
Total shareholders' equity 5,520,365 5,974,571
------------ ------------
$ 6,234,301 $ 6,641,433
============ ============
</TABLE>
Note: The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
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HYDRON TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
1999 1998
----------- -----------
Net sales $ 586,082 $ 1,311,218
Cost of sales 186,550 543,406
----------- -----------
Gross profit 399,532 767,812
----------- -----------
Expenses:
Royalty expense 35,738 55,894
Research and development 104,451 118,329
Selling, general & administrative 618,091 605,627
Depreciation & amortization 122,168 128,357
----------- -----------
880,448 908,207
----------- -----------
Operating loss (480,916) (140,395)
Interest and investment income 23,841 30,944
Joint venture equity pick-up 2,869 20,032
----------- -----------
Loss before income taxes (454,206) (89,419)
Income tax expense -- --
----------- -----------
Net loss $ (454,206) $ (89,419)
=========== ===========
Basic and diluted loss per share -
Net loss per common share $ ( .09) $ (.02)
=========== ===========
See notes to condensed consolidated financial statements.
Page 4 of 16
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HYDRON TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
1999 1998
----------- -----------
Operating activities:
Net cash provided by operating activities $ 84,349 $ 285,532
----------- -----------
Investing activities:
Capital expenditures -- (424)
----------- -----------
Net cash used by
investing activities -- (424)
----------- -----------
Financing activities:
Net cash provided (used) by
financing activities -- --
----------- -----------
Net increase in cash
and cash equivalents 84,349 285,108
Cash and cash equivalents at
beginning of period 2,127,781 2,133,722
----------- -----------
Cash and cash equivalents at
end of period $ 2,212,130 $ 2,418,830
=========== ===========
See notes to condensed consolidated financial statements.
Page 5 of 16
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HYDRON TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management of Hydron Technologies, Inc.
(the "Company"), all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three-month period ended March 31, 1999 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.
All common shares and per share amounts have been adjusted to give retroactive
effect to a one-for-five reverse stock split which became effective on October
16, 1998.
NOTE B -- INVENTORIES
Inventories consist of the following:
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
Finished goods $ 848,498 $ 909,928
Work in progress 180,447 199,374
Raw materials and components 630,913 642,051
------------ ------------
$ 1,659,858 $ 1,751,353
============ ============
NOTE C - DISTRIBUTION AGREEMENT
The Company entered into a license agreement with QVC, Inc. ("QVC") in 1993,
whereby QVC was granted exclusive rights to market and distribute the Company's
proprietary consumer products using Hydron polymers in the Western Hemisphere.
On July 19, 1996, the Company and QVC modified their license agreement (Amended
License Agreement). The Amended License Agreement provides the Company with
certain retail marketing rights, and increases the minimum product purchase
requirements QVC must meet on a biannual basis to maintain their exclusive
rights to market Hydron consumer products through direct response television.
Page 6 of 16
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HYDRON TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999
NOTE C - DISTRIBUTION AGREEMENT (CONTINUED)
Pursuant to the Amended License Agreement, certain retail marketing rights
formerly held by Direct to Retail (DTR), which rights were granted by QVC to DTR
under a separate agreement, reverted to the Company. Such retail marketing
rights include prestige retail channels of distribution such as traditional
department and specialty stores, boutique stores and beauty salons, as well as
catalog sales. QVC is entitled to receive a commission from the Company on any
such sales.
On June 11, 1997, the Company and QVC renegotiated the Amended License Agreement
(Renegotiated License Agreement) pursuant to which the term of the Amended
License Agreement was extended for one year, with the next two year term
commencing on June 1, 1997.
Under the terms of the Renegotiated License Agreement, QVC must meet certain
minimum product purchase requirements for a two year period, including annual
minimum product purchase requirements, to maintain its exclusive rights. No
obligation exists for QVC to purchase the Company's product except to maintain
such exclusive rights, and no assurances can be given that QVC will meet the
escalating minimum purchase levels for subsequent years in order to maintain
such exclusive rights. If QVC meets the stipulated minimum product purchase
requirements, then the Renegotiated License Agreement renews automatically. If
QVC does not meet the annual or biannual minimum product purchase requirements,
then the Company alone can elect to continue or terminate the Renegotiated
License Agreement. If the Renegotiated License Agreement terminates, the Company
may seek other marketing and distribution arrangements for its products, which
may include distribution agreements with QVC on a nonexclusive arrangement.
Although management believes that there are other avenues for selling its
products, including the Hydron catalog, the loss of QVC as a customer would have
a material adverse effect on the Company's business.
Page 7 of 16
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HYDRON TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999
NOTE D - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted loss per
share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
----------- -----------
<S> <C> <C>
Numerator:
Net loss is both the numerator for basic
loss per share (income available to common
shareholders) and the numerator for diluted loss
per share (income available to common shareholders
after assumed conversions) $ (454,206) $ (89,419)
=========== ===========
Denominator:
Denominator for basic loss per share
(weighted-average shares) 4,910,136 4,910,136
Effect of dilutive securities: Stock options and warrants -- --
----------- -----------
Denominator for dilutive loss per
share (adjusted weighted-average) 4,910,136 4,910,136
=========== ===========
Basic loss per share $ (.09) $ (.02)
=========== ===========
Diluted loss per share $ (.09) $ (.02)
=========== ===========
</TABLE>
Options and warrants to purchase 363,100 shares of common stock were outstanding
at March 31, 1999, but were not included in the computation of diluted earnings
per share because the effect would be antidilutive to the net loss per share for
the period.
Page 8 of 16
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HYDRON TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MARCH 31, 1999
NOTE E - CONTINGENCIES
On September 30, 1997, Harvey Tauman, formerly Chairman, Chief Executive
Officer, President and Treasurer of the Company, whose employment was terminated
by the Company on September 19, 1997, commenced an action (the "Action") against
the Company in the Circuit Court of the Fifteenth Judicial District in and for
Palm Beach County, Florida. In his complaint in the Action, Mr. Tauman alleges
that the Company breached his employment contract upon the termination of his
employment and seeks damages of not less than $4,000,000, plus interest and
costs. Mr. Tauman also seeks a declaration that his employment was terminated
without cause and that he may continue to exercise his stock options for the
duration of their term notwithstanding the termination of his employment.
On November 4, 1997, the Company served and filed its answer to the complaint in
the Action and asserted counterclaims against Mr. Tauman seeking various relief
against him including an award of compensatory and punitive damages of not less
than $6,000,000, together with appropriate interest, costs and expenses. In its
counterclaims, the Company seeks a declaration, among other things, that Mr.
Tauman breached his employment agreement as a result of wrongful and fraudulent
performance of his duties under the contract. Among other allegations, the
Company contends in its counterclaims that Mr. Tauman improperly caused the
Company to make payments of personal expenses upon the submission by Mr. Tauman
of false expense reports and receipts, caused the Company improperly to enter
into consulting agreements with members of his family and with friends without
Board approval, misrepresented to the Board the financial condition of the
Company and its prospects in order to obtain a grant to himself of bonuses and
stock options to which he would otherwise not have been entitled, caused the
submission to the Board of false projections of the Company's revenues in order
to cause the Board to declare dividends of which he was a substantial recipient
and to approve a share repurchase plan, caused the Company to pay for accounting
services rendered to him and to other members of his family, and intentionally
breached his fiduciary duties to the Company.
The litigation is currently in the discovery stage and is currently set for
trial for August 1999. Management is unable, at this time, to estimate the
likelihood or scope of liability, if any, it may incur as a result of Mr.
Tauman's claims or the likelihood of success of its counterclaims. However, a
monetary judgment in Mr. Tauman's favor, and an adverse judgment on the
Company's counterclaims, would result in a material adverse effect on the
Company's financial condition and results of operations.
Page 9 of 16
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BUSINESS
Hydron Technologies, Inc. (the "Company") markets a broad range of consumer and
oral health care products using Hydron(R) polymers, a scientifically-proven
moisture attracting ingredient, and also owns a non-prescription drug delivery
system for topically applied pharmaceuticals, which uses such polymer. The
Company holds U.S. and international patents on the only known means to suspend
the Hydron polymer in a stable emulsion that is cosmetically acceptable for use
in personal care/cosmetic products, thereby creating a new moisturizing
technology for the personal care/cosmetic and pharmaceutical industries. The
Company sells specialty personal care/cosmetic products, and to a lesser extent
oral health care products, most of which are covered by patent, license and/or
royalty agreements. The Company has entered into a License Agreement with QVC,
Inc. ("QVC"), as amended and renegotiated (the "Renegotiated License
Agreement"), which gives QVC certain exclusive rights to purchase licensed
products from the Company for sale in the Western Hemisphere. In addition, the
Company has entered into a license agreement with National Patent Development
Corp. ("National Patent"), which provides for reciprocal royalty payments based
on the sale of certain of each party's products. The Company is developing other
personal care/cosmetic products for consumers using Hydron polymers. The Company
also uses its patented technology as a drug delivery system in one of its
proprietary products, in which Hydron polymers act as a drug release mechanism.
The Company intends to continue to explore the efficacy of using its technology
for such purposes and would, when appropriate, either seek licensing
arrangements with third parties, or develop and market proprietary products
through its own efforts.
Substantially all of the Company's net sales are derived from sales to QVC under
the Renegotiated License Agreement. Pursuant to the Renegotiated License
Agreement, if QVC fails to meet the stipulated minimum product purchase
requirements at any measurement date, the Company alone can elect to continue or
terminate the agreement. Management does not believe that QVC will meet the
stipulated minimum product purchase requirements for the term ending May 31,
1999. The Company has not decided what actions, if any, it plans to take under
such circumstances.
RESULTS OF OPERATIONS
Net sales for the three months ended March 31, 1999 were $586,082, a decrease of
$725,136, or 55%, from net sales of $1,311,218 for the three months ended March
31, 1998. Non-catalog net sales, primarily to QVC and related entities, for the
three months ended March 31, 1999 were $413,245, a decrease of $647,341 or 61%,
from non-catalog net sales of $1,060,586 for the three months ended March 31,
1998. The decrease in non-catalog sales resulted primarily from decreased sales
to QVC, which in turn, resulted primarily from a reduction in QVC's retail sales
due to the amount and quality of hours provided by QVC, as well as the number of
new product introductions, the amount of competitive products offered by QVC and
the effectiveness of the host and spokesperson. Catalog net sales for the three
months ended March 31, 1999 were $172,837, a decrease of $77,795, or 31%, from
catalog net sales of $250,632 for the three months ended March 31, 1998. The
decrease in catalog net sales was the result of a one-time vitamin sale of
approximately $73,000 during the three months ended March 31, 1998.
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RESULTS OF OPERATIONS (CONTINUED)
Approximately 71% and 80% of the Company's sales during the three months ended
March 31, 1999 and 1998, respectively, were to QVC and its related entities.
Management anticipates that sales to QVC will continue to be a substantial
percentage of the Company's sales and, absent the consummation of marketing or
distribution arrangements with third parties other than QVC, the Company's
dependence upon QVC as a substantial customer will remain significant. Any
disruption in the Company's relationship with QVC would have a material adverse
effect on the business, financial condition and results of operations of the
Company.
The Company's overall gross profit margin for the three months ended March 31,
1999 was 68%, as compared to 59% for the three months ended March 31, 1998. The
gross profit margins on non-catalog sales were 62% and 56% for the three months
ended March 31, 1999 and 1998, respectively. The increase in non-catalog gross
profit margin was the result of the mix of products sold to QVC. The gross
profit margins on catalog sales were 82% and 71% for the three months ended
March 31, 1999 and 1998, respectively. The increase in catalog related gross
profit margin relates to a one-time sale of approximately $73,000, at a 44%
gross profit margin, during the three months ended March 31, 1998.
Research and development ("R&D") expenses reflect the Company's efforts to
identify new product opportunities, develop and package the products for
commercial sale, perform appropriate efficacy and safety tests, and conduct
consumer panel studies and focus groups. R&D expenses for the three months ended
March 31, 1999 were $104,451, a decrease of $13,878, or 12%, from R&D expenses
of $118,329 for the three months ended March 31, 1998. This decrease is the
result primarily of approximately $50,000 in clinical studies accrued for on
various products during the three months ended March 31, 1998. No such clinical
studies were accrued for during the three months ended March 31, 1999. The
amount of R&D expenses per year varies, depending on the nature of the
development work during each year, as well as the number and type of products
under development at such time.
Selling, general and administrative ("SG&A") expenses for the three months ended
March 31, 1999 were $618,091, an increase of $12,464, or 2%, from SG&A expenses
of $605,627 for the three months ended March 31, 1998. Non-catalog SG&A expenses
for the three months ended March 31, 1999 were $532,804, an increase of $42,337,
or 9%, from non-catalog SG&A expenses of $490,467 for the three months ended
March 31, 1998. The increase in non-catalog SG&A expenses was the result
primarily of expenses associated with the sublease of a portion of the Company's
administrative office space in March 1999. Total catalog SG&A expenses for the
three months ended March 31, 1999 were $85,287, a decrease of $29,873, or 26%,
from catalog SG&A expenses of $115,160 for the three months ended March 31,
1998. This decrease in catalog SG&A was attributable primarily to a decrease in
payroll and promotional costs.
Interest and investment income for the three months ended March 31, 1999 was
$23,841, a decrease of $7,103, or 23%, from interest and investment income of
$30,944 for the three months ended March 31, 1998. This decrease is due
primarily to lower cash balances as a result of the factors discussed above. The
Company maintains a conservative investment strategy, deriving investment income
primarily from U.S. Treasury securities.
11 of 16
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RESULTS OF OPERATIONS (CONTINUED)
The net loss for the three months ended March 31, 1999 was $454,206, as compared
to a loss of $89,419 for the three months ended March 31, 1998. This increase in
net loss was the result primarily of the factors discussed above. The net loss
for the three months ended March 31, 1999 includes a net loss from non-catalog
operations of $495,454, partially offset by a net profit from catalog operations
of $41,248. The net loss for the three months ended March 31, 1998 includes a
net loss of $139,412 from non-catalog operations, partially offset by a net
profit from catalog operations of $49,993.
LIQUIDITY AND FINANCIAL RESOURCES
The Company's working capital was approximately $3,466,000 at March 31, 1999,
including cash and cash equivalents of approximately $2,212,000.
There were no investing activities during the three months ended March 31, 1999.
The investing activities during the three months ended March 31, 1998 consisted
primarily of the purchase of equipment.
There were no financing activities during the three months ended March 31, 1999
or the three months ended March 31, 1998.
Based on the Company's present cash position, absence of any short or long term
debt, arrangements with third parties for contractual manufacturing and R&D, and
the Company's present business strategy, management believes that the Company
has adequate resources to meet normal, recurring obligations, for at least the
next twelve months, as they become due. Further, in view of the thirty-day
payment terms in connection with sales to QVC, management does not anticipate
any difficulty in financing foreseeable inventory requirements. The Company has
had and is continuing to have discussions with QVC regarding possible amendments
to the Renegotiated License Agreement in an effort to boost retail sales of the
Hydron products. However, there can be no assurances that such discussions will
be successful, and any further material reduction in the volume of sales to QVC
would have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, ongoing legal expenses,
including attorney's fees and out-of-pocket expenses, incurred in connection
with the pending litigation between the Company and Harvey Tauman may have, and
any adverse monetary judgment against the Company in a material amount, would
have an adverse effect on the Company's liquidity. SEE Note E to "Notes to
Condensed Consolidated Financial Statements."
The Company does not have the financial resources to sustain a national
advertising campaign to market its products in a conventional retail mode. In
view of the foregoing, management's strategy has been to enter into marketing,
licensing and distribution agreements with third parties, such as QVC, which
have greater financial resources than those of the Company and that can enhance
the Company's product introductions with appropriate national marketing support
programs.
The effect of inflation has not been significant upon either the operations or
financial condition of the Company.
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LIQUIDITY AND FINANCIAL RESOURCES (CONTINUED)
THE YEAR 2000 ISSUES
The Company is dependent upon computer technology to effectively carry out its
day-to-day operations. In addition, the Company is dependent on suppliers and
customers who also use computer technology in the conduct of their business. The
terms "Year 2000 issues" or "Year 2000 problems," or words of a similar nature,
refer to the potential for failure of computer applications as a result of the
failure of programs to properly recognize and handle dates beyond the year 1999.
In the case of the Company, such computer applications may include customer
order processing, inventory management, shipment of products, internal financial
systems and other information systems, among others.
- READINESS
The Company's assessment of the possible consequences of Year 2000 issues on its
business, results of operations, or financial conditions is not complete, but is
continuing in accordance with a Year 2000 compliance plan (the "Year 2000
Plan"). The Year 2000 Plan includes (1) upgrading the Company's information
technology software and embedded technology applications in its systems, where
applicable, to become Year 2000 compliant, (2) assessing the Year 2000 readiness
of suppliers and customers, and (3) developing contingency plans, if practical,
for crucial system and processes. Implementation of the Year 2000 Plan has been
undertaken with respect to various operating and information systems in varying
degrees to date. The Year 2000 Plan is expected to be fully implemented with
respect to crucial information systems in 1999.
Progress to date includes the purchase of upgraded hardware and software
packages and reprogramming of existing systems. All internal systems are
expected to be Year 2000 compliant in 1999. Because the Company is dependent on
its suppliers and customers to successfully operate its business, the Year 2000
Plan includes an assessment process with respect to those vendors and customers
deemed most critical to the operations and business of the Company. To date, the
Company has contacted certain vendors and anticipates completing its vendor
assessment process by the end of 1999. The initial steps of an analysis of the
Company's significant customer to determine the potential effect of the Year
2000 issues on this customer has begun and is expected to be completed in 1999.
The Year 2000 Plan requires continued assessment throughout 1999 in these areas.
- COSTS
The costs of the Year 2000 Plan include the purchase price of computer hardware
and software packages, fees for contract programmers and the cost of internal
information technology resources. The costs of achieving Year 2000 compliance
have not been material to date and are not expected to be material.
13 of 16
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LIQUIDITY AND FINANCIAL RESOURCES (CONTINUED)
- RISKS
The Company expects no material adverse effect on its results of operations,
liquidity or financial condition as a result of problems encountered in its own
business as a result of Year 2000 issues or as a result of the impact of Year
2000 problems on its vendors or customers. However, the risks to the Company
associated with Year 2000 issues could be significant. While the Company is
undertaking its own evaluation and testing of its information technology and
non-information technology systems, it is dependent to some extent on the
assurances and guidance provided by suppliers of technology and programming
services as to Year 2000 compliance readiness.
Similarly, the Company's Year 2000 Plan calls for ongoing analysis of the
possible effects of Year 2000 problems on its suppliers of materials and
non-information technology goods and services as well as its customers and
demands for its products. The Company has limited ability to independently
verify the possible effects of Year 2000 issues on its customers and suppliers.
Therefore, the Company's assumptions concerning the effect of Year 2000 issues
on its results of operations, liquidity, and financial condition relies on its
ability to analyze the business and operations of each of its critical vendors
or customers. This process, by the nature of the problem, is limited to such
persons' public statements, their responses to the Company's inquiries, and the
information available to the Company from third parties concerning the
industries or particular vendors or customers involved.
Risk also exists that despite the Company's best efforts, critical systems may
malfunction due to year 2000 problems and disrupt its operations. The Company is
unable to determine at this time the nature or length of time for such possible
disruption and therefore the potential materiality thereof to its business or
profitability.
Interruptions of communication services or power supply due to Year 2000
problems can cause affected locations to cease or curtail production or receipt
and shipment of materials and products. The Company is dependent on the
suppliers of power and communication services that no such disruptions occur.
- CONTINGENCY PLANS
As part of its Year 2000 Plan, the Company will continue to identify and
evaluate risks and possible alternatives should various contingencies arise. The
Company has prioritized remediation of its most crucial information systems and
believes that they will be Year 2000 compliant by the end of 1999. Should
unforeseen circumstances result in substantial delay that may lead to disruption
of business, the Company will develop contingency plans where possible and not
cost prohibitive. To some extent the Company may not be able to develop
contingency plans, such as in the case of communication services or the supply
of power.
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CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
The statements contained in this Report on Form 10-Q that are not purely
historical are forward looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including statements regarding the Company's expectations, hopes,
intentions, beliefs or strategies regarding the future. Forward looking
statements include the Company's liquidity, anticipated cash needs and
availability, and the anticipated expense levels under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations." All
forward looking statements included in this document are based on information
available to the Company on the date of this Report, and the Company assumes no
obligation to update any such forward looking statement. It is important to note
the Company's actual results could differ materially from those expressed or
implied in such forward looking statements. You should also consult the
Company's Annual Report on Form 10-K for the year ended December 31, 1998 as
well as those factors listed from time to time in the Company's other reports
filed with the Securities and Exchange Commission pursuant to the Securities
Exchange Act of 1934 and the Securities Act of 1933.
PART II- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Note E to "Notes to Consolidated Financial Statements"
ITEM 5. OTHER INFORMATION
On April 28, 1999, the Company was notified by the Nasdaq-Amex Market Group that
the Company's shares will no longer be listed on the Nasdaq SmallCap Market due
to noncompliance with the $1 per share closing bid price requirement. The
Company's shares are now traded on the NASD OTC Bulletin Board under the symbol
HTEC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A - Exhibits
27.1 - Financial Data Schedule
B - Reports on Form 8-K
None
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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.
HYDRON TECHNOLOGIES, INC.
BY: /s/ THOMAS G. BURNS
-----------------------
Thomas G. Burns
Vice President, Finance and
Chief Financial Officer
Dated: May 12, 1999
16 of 16
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EXHIBIT INDEX
EXHIBIT DESCRIPTION
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27 - Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-01-1999
<CASH> 2,212,130
<SECURITIES> 0
<RECEIVABLES> 221,473
<ALLOWANCES> 0
<INVENTORY> 1,659,858
<CURRENT-ASSETS> 4,179,990
<PP&E> 1,109,819
<DEPRECIATION> 647,988
<TOTAL-ASSETS> 6,234,301
<CURRENT-LIABILITIES> 713,936
<BONDS> 0
0
0
<COMMON> 49,603
<OTHER-SE> 19,429,931
<TOTAL-LIABILITY-AND-EQUITY> 6,234,301
<SALES> 586,082
<TOTAL-REVENUES> 612,792
<CGS> 186,550
<TOTAL-COSTS> 186,550
<OTHER-EXPENSES> 880,448
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (454,206)
<INCOME-TAX> 0
<INCOME-CONTINUING> (454,206)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (454,206)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
