HYDROMER, INC.
35 Columbia Road
Branchburg, NJ 08876-3518
NOTICE OF 1996 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD OCTOBER 24, 1996
The Annual Meeting of the Shareholders of HYDROMER, Inc. (the "Company")
will be held on Thursday, October 24, 1996, at the Corporate Headquarters of
Hydromer, 35 Columbia Road, Branchburg, New Jersey at 10 o'clock a.m. for the
following purpose, as more fully described in the accompanying Proxy Statement:
1. To elect directors of the Company for the ensuing year.
2. To ratify the selection by the Board of Directors of Rosenberg Rich
Baker Berman & Company as the Company's independent accountants for
fiscal 1997.
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The close of business on September 3, 1996 has been fixed by the Board of
Directors as the record date for the determination of shareholders entitled to
notice of, and to vote at the Meeting.
By Order of the Board of Directors
Robert D. Frawley, Secretary
Branchburg, New Jersey
September 6, 1996
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY CARD AND PROMPTLY MAIL IT IN THE ENCLOSED ENVELOPE IN
ORDER TO ASSURE REPRESENTATION OF YOUR SHARES AT THE MEETING. NO POSTAGE NEED BE
AFFIXED IF PROXY CARD IS MAILED IN THE UNITED STATES.
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PROXY STATEMENT
This Proxy Statement, which will be mailed commencing on or about September 6,
1996 to the persons entitled to receive the accompanying Notice of Annual
Meeting of Shareholders, is provided in connection with the solicitation of
Proxies on behalf of the Board of Directors of HYDROMER, INC. for use at the
Annual Meeting of Shareholders to be held at the Corporate Headquarters of
Hydromer, 35 Columbia Road, Branchburg, New Jersey at 10 o'clock a.m. on October
24, 1996 and at any adjournment thereof, for the purposes set forth in such
Notice. The Company's executive office is located at 35 Columbia Road,
Branchburg, New Jersey 08876-3518.
At the close of business on September 3, 1996, the record date stated in the
accompanying Notice, the Company had 4,367,987 outstanding shares of Common
Stock without par value ("Common Stock"), each of which is entitled to one vote
with respect to each matter to come before the Meeting. The Company has 10,917
shares of Common Stock which are Treasury Stock and not entitled to vote. The
Company has no class or series of stock outstanding other than the Common Stock.
As of September 3, 1996, Manfred F. Dyck, Chairman of the Board and a director
of the Company, beneficially owned approximately 38.51% of the outstanding
Common Stock of the Company, and his wife Ursula M. Dyck, a director of the
Company, beneficially owned an additional 3.62% of the Common Stock. Such
ownership may enable such shareholders to exercise a controlling influence over
the Company's affairs.
I. ELECTION OF DIRECTORS
Five directors will be elected at the Annual Meeting of Shareholders, each to
serve for one year and until a successor shall have been duly chosen and
qualified. It is the intention of each of the persons named in the accompanying
form of Proxy to vote the shares represented thereby in favor of the five
nominees listed in the following table, unless otherwise instructed in the
Proxy. In case any of the nominees is unable or declines to serve, such persons
reserve the right to vote the shares represented by such Proxy for another
person duly nominated by the Board of Directors in his or her stead or, if no
other person is so nominated, to vote such shares only for the remaining
nominees. The Board of Directors has no reason to believe that any person named
will be unable or will decline to serve. Certain information concerning the
nominees for election as directors is set forth below. Such information was
furnished by them to the Company.
Name of Nominee and Certain
Biographical Information
- ----------------------------
MANFRED F. DYCK, age 61; President of Biosearch Medical Products, Inc.
(manufacturer and distributor of enteral feeding systems) since 1975; Chairman
of the Board of the Company since June 1983 and Chief Executive of the Company
since July of 1989; President from 1980 to June 1983; Director of Biosearch
Medical Products Inc. since 1975; Director of the Company since 1980.
MAXWELL BOROW, M.D., age 70, Medical Doctor, retired Chief of Surgery at
Somerset Medical Center (hospital) from 1985-1994, Chief of Vascular Surgery at
Somerset Medical Center from 1978-1985; Director of the Company since 1990.
URSULA M. DYCK, age 62; Vice President Sales and Marketing of Biosearch Medical
Products, Inc. since 1991; Director: Biosearch Medical Products Inc. since 1975;
and Director of the Company since 1980.
DIETER HEINEMANN, age 58; Specialist, Frankfurt, Germany Stock Exchange since
prior to 1987. Director of the Company since 1991.
ROBERT H. BEA, age 43; Director of Quality Assurance & Regulatory Affairs of
Siemens Hearing Instruments, Inc. since 1994; Vice President of Quality
Assurance and Regulatory Affairs of Biosearch Medical Products, Inc. from 1992-
1994; Previously, he worked at Johnson & Johnson where he held positions of
increasing responsibility in Quality/Regulatory affairs from 1973-1991. Director
of the Company since 1996.
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Stock Owned
Beneficially as of
September 3, 1996 (1) Percent of Class
--------------------- ----------------
MANFRED F. DYCK, ............ 1,682,173 (2) 38.51%
MAXWELL BOROW, M.D., ........ 3,000 Less than 1%
URSULA M. DYCK, ............. 158,076 (3) 3.62%
DIETER HEINEMANN, ........... 565,155 (4) 12.94%
ROBERT H. BEA ............... -0- --
- -------------
(1) As of September 3, 1996, except as otherwise indicated below, each nominee
has sole voting and investment power with respect to all shares shown in the
table as beneficially owned by such nominee.
(2) Includes an aggregate of 23,676 shares held by Mr. Dyck as custodian for
certain of his children and does not include 186,908 shares held with sole
voting investment power by Mr. Dyck's children and his mother, as to which Mr.
Dyck disclaims beneficial ownership, or shares held by Ursula M. Dyck, his wife.
(3) Includes an aggregate of 23,076 shares held by Mrs. Dyck as custodian for
certain of her children and does not include 140,756 shares held with sole
voting and investment power by Mrs. Dyck's children, as to which Mrs. Dyck
disclaims beneficial ownership, or shares held by Manfred F. Dyck, her husband,
individually or as custodian.
(4) Does not include 135,000 shares held by the wife and children of Mr.
Heinemann as to which he disclaims beneficial ownership.
During the past year, the Board of Directors of the Company met five times. Mr.
Dyck attended 100% of the meetings of the Board of Directors and Mrs. Dyck
attended 100%, Dr. Borow attended 80% and Mr. Heinemann attended 100%.
Since May of 1990, directors have been compensated at the rate of $750 per
meeting for directors meetings attended in person, and $200 per meeting for
telephone conference meetings. In addition, directors may attend operational
meetings with Company management, and will be compensated at the rate of $500
per meeting for attendance at such meetings. No such operational meetings were
held in the fiscal year 1996.
The Board of Directors of the Company does not have a Nominating Committee. The
members of the Audit Committee were the Board of Directors. The Audit Committee
performed its functions during the five Board Meetings.
Five Directors are standing for election at the annual meeting.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth information concerning cash compensation paid or
accrued by the Company during the fiscal year ended June 30, 1996, to the CEO
and for each of the executive officers of the Company whose total cash
compensation exceeded $100,000 and the aggregate cash compensation of all
executives of the Company as a group.
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<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Name
and Other Annual Restricted
Principle Compensation ($) Stock Options LTIP All Other
Position Year Salary($) Bonus($) (1) Awards /SARs($) Payouts Compensation
- --------------- ---- ------ ------ ------------- -------- ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Manfred F. Dyck, 1994 50,000 -- -- -- -- -- --
Chairman, 1995 50,000 --
President, CEO 1996 52,500 5,000
</TABLE>
The aggregate value of restricted shares of the Company held by Manfred F. Dyck
as of June 30, 1996 was approximately $155,484 (includes only shares held
directly, does not include option or shares held as custodian.)
Cash compensation of all executive officers of the Company as a group
(3 persons) was $199,510.
(1) Automobile Allowance was paid in the year shown.
STOCK OPTIONS
On January 23, 1992, the Board of Directors granted options to purchase 12,000
shares of Common Stock of the Company with 4,000 shares being exercisable
immediately, 4,000 becoming exercisable one year from the date of the grant, and
the final 4,000 becoming exercisable two years from the date of the grant. The
exercise price of $0.625 per share was equal to the market price at the date of
grant. At June 30, 1996, 12,000 option shares are exercisable. No options
previously granted were exercised during the 1996 fiscal year.
In 1984 the Board of Directors conferred upon Manfred F. Dyck, Chairman of the
Board of the Company, the authority to grant to, among others, employees of the
Company including executive officers, options to purchase up to 15,000 shares of
the Common Stock of the Company at an exercise price of $1.00 per share, and
upon such other terms and conditions as the Chairman may determine. No such
options were granted during the 1996 fiscal year.
CERTAIN AGREEMENTS WITH DIRECTORS AND EXECUTIVE OFFICERS
Manfred F. Dyck has served as Chairman, Chief Executive Officer and President of
the Company since July of 1989. He serves the Company approximately 2 1/2 days
per month, not to exceed 10% of his time. He is compensated by a salary of
$52,500 per annum and a car allowance of $5,000 per annum.
INFORMATION CONCERNING CERTAIN SHAREHOLDERS
The shareholders (including any "group" as that term is used in Section 13(d)
(3) of the Securities Exchange Act of 1934) who, to the knowledge of the Board
of Directors of the Company, owned beneficially more than 5% of the outstanding
Common Stock as of September 3, 1996, and all directors and officers of the
Company as a group, and their respective shareholdings (according to information
furnished by them to the Company), are set forth in the following table. Except
as indicated in the footnotes to the table, all of such shares are owned with
sole voting and investment power.
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SHARES OF COMMON
STOCK OWNED PERCENT OF CLASS
---------------- ----------------
Name and Address Beneficially (1)
- ---------------- ----------------
Manfred F. Dyck ................... 1,682,173 (2)(3) 38.52%
255 Holland Road
Far Hills, NJ 07931
Ben A Posdal ...................... 300,000 6.86%
Post Office Box 23632
Tampa, FL 33623
Dieter Heinemann .................. 565,155 (4) 12.92%
Goldbergweg 64
60599 Frankfurt AM
Federal Republic of Germany
All Directors and Officers
As a group (6 persons) .......... 2,420,404 (2)(4)(5) 55.26%
- ---------------
(1) As of September 3, 1996, except as otherwise indicated below, each nominee
had sole voting and investment power with respect to all shares shown in the
table as beneficially owned by such nominee.
(2) Includes an aggregate of 23,676 shares held by Mr. Dyck as custodian for
certain of his minor children and does not include 186,908 shares held with sole
voting and investment power by Mr. Dyck's children and his mother, as to which
Mr. Dyck disclaims beneficial ownership.
(3) Does not include 158,076 shares held by Ursula M. Dyck, Mr. Dyck's wife,
individually and as custodian, and pursuant to exercisable options.
(4) Does not include 135,000 shares held by the wife and children of Mr.
Heinemann as to which he disclaims beneficial ownership.
(5) Includes 12,000 shares issuable pursuant to exercisable options held by
directors, officers and former officers of the company. Includes an aggregate of
23,076 shares held by Mrs. Dyck as custodian for certain of her minor children.
OTHER INFORMATION CONCERNING DIRECTORS, OFFICERS AND SHAREHOLDERS
During the fiscal year ended June 30, 1996, the Company sold materials and
services in the aggregate amount of $18,799 to Biosearch Medical Products Inc.
("BMP"), a manufacturer and distributor of enteral feeding systems, and until
September 1982 the holder of 99% of the Company's Common Stock. In connection
with the distribution of BMP's shareholdings in the Company pro rata to the
holders of BMP's Common Stock, the Company granted to BMP a world-wide,
exclusive, royalty-free license to make, have made, use and sell Hydromer
coatings on enteral feeding products. In January 1991, the Company also licensed
BMP to apply its patented hydrophilic coatings to biliary stents, pancreatic
stents, and certain gastrointestinal devices. Royalties are payable upon
commercialization of the product and minimum royalties are due annually
beginning January 1, 1992. In June of 1996, the Company also licensed BMP to
apply its patented hydrophilic coatings to intermittent urinary catheters.
Manfred F. Dyck and Ursula M. Dyck, both of whom are directors or executive
officers of the Company are also directors or members of the management of BMP,
hold approximately 20% of the Common Stock of BMP on a fully diluted basis. The
Company believes that the terms of the foregoing arrangements are fair and
equitable to both parties.
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Robert D. Frawley, Secretary of the Company, is of counsel to the law firm of
Smith, Stratton, Wise, Heher and Brennan, Princeton, New Jersey. By agreement
with the Company, Mr. Frawley provides legal counsel to the Company on a
fee-for-service basis. Smith, Stratton, Wise, Heher & Brennan is expected to
render legal services in the future.
II. RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
Subject to ratification by the stockholders, the Board of Directors, has
selected the firm of Rosenberg Rich Baker Berman & Company as the Company's
independent public accountants for the current year.
Representatives of Rosenberg Rick Baker Berman & Company are expected to be
present at the Annual Meeting. They will have the opportunity to make a
statement if they desire to do so and will also be available to respond to
appropriate questions from stockholders.
III. OTHER MATTERS
The Board of Directors of the Company does not know of any other matters which
may be brought before the meeting. However, if any such other matters are
properly presented for action, it is the intention of the persons named in the
accompanying form of Proxy to vote the shares represented thereby in accordance
with their judgment on such matters.
IV. MISCELLANEOUS
If the accompanying form of Proxy is executed and returned, the shares
represented thereby will be voted in accordance with the terms of the Proxy,
unless the proxy is revoked. If no directions are indicated in such Proxy, the
shares represented thereby will be voted in the election of directors in favor
of the nominees proposed by the Board of Directors, and in favor of ratification
of The Independent Certified Public Accountants. Any Proxy may be revoked at any
time before it is exercised. The casting of a ballot at the Meeting by a
shareholder who may theretofore have given a Proxy will not have the effect of
revoking the same unless the shareholder so notifies the Secretary of the
meeting in writing at any time prior to the voting of the shares represented by
the Proxy.
Votes which are withheld will be treated as shares which are present for
purposes of determining a quorum. Withheld votes will be excluded in determining
whether a nominee for director or the ratification of independent certified
public accountants, has received a plurality of the votes cast.
All costs relating to the solicitation of Proxies will be borne by the Company.
Proxies may be solicited by mail and the Company may pay brokers and other
persons holding shares of stock in their names or those of their nominees for
their reasonable expenses in sending soliciting materials to their principals.
It is important that Proxies be returned promptly. Shareholders who do not
expect to attend the Meeting in person are urged to mark, sign and date the
accompanying form of Proxy and mail it in the enclosed return envelope, which
requires no postage if mailed in the United States, so that their vote can be
recorded.
V. EXCHANGE ACT COMPLIANCE
Section 16(a) of the Securities Exchange Act requires that certain of the
Company's officers, directors and persons who own more than ten percent of a
registered class of the Company's securities, file reports of ownership and
changes in ownership of the Company's securities with the Securities Exchange
Commission. Officers, directors and greater than ten percent shareholders are
required to provide the Company with copies of the forms they file.
Based solely upon its review of copies of such forms received by the Company,
and upon representations by the Company's officers and directors regarding
compliance with the filing requirements, the company believes that in Fiscal
1996, all filing requirements applicable to its officers, directors and ten
percent shareholders were complied with.
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SHAREHOLDER PROPOSALS
Shareholder proposals intended to be presented at the 1997 Annual Meeting of
Shareholders of the Company must be received by the Company by July 22, 1997 in
order to be considered for inclusion in the Company's Proxy Statement relating
to such meeting.
Branchburg, New Jersey
September 6, 1996
By Order of the Board of Directors
ROBERT D. FRAWLEY
--------------------------------------
Robert D. Frawley
Secretary
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TO OUR SHAREHOLDERS:
In fiscal 1996 Hydromer posted net income of $76,046 or $.017 cents per
share, on revenues of $1,552,358, as compared with a net loss of $(186,885) or
$(.043) cents per share, on revenues of $1,166,902 recorded in fiscal year 1995.
Hydromer has seen its total assets grow to over one million dollars. Our
rather diverse business, mostly based on our own patents, covers cosmetic
ingredients, medical coatings, and condensation control formulations. These
three products account for 83% of total product sales, individually they grew at
35%, (8%)) and 23% from prior fiscal year. The decrease in product sales on
medical coating was only $16,490 dollars from prior years sales. Our main
research will focus on both the cosmetic and condensation control technologies.
Strong product developments have given us two new technologies:
1. Poison Ivy and Poison Oak Barrier Formula (patent pending) and
2. Aquatrix Hydrogels (patents No. 5,156,601, 5,258,421 and 5,420,197)
To accelerate marketing for our technologies, two new positions have been
created and filled. Cosmetic formulas and ingredients are handled by a Director
of Sales and Marketing, while a similar position addresses our business interest
for industrial and medical applications.
We are paying special attention to export potentials in Asia and Europe by
expanding our international representation. This and the creation of new
products and technologies allows us to look forward to 1997 with optimism and
excitement.
Respectfully submitted,
M.F. DYCK
--------------------------------
M.F. Dyck
Chairman and President
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D. C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
Commission File Number 0-10683
HYDROMER, INC.
----------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-2303576
- ---------------------------------------- ---------------
(State of incorporation) (I.R.S. Employer
Identification No.)
35 Columbia Road, Branchburg, New Jersey 08876-3518
- ---------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 526-2828
----------------
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock Without Par Value
----------------------------------
(Title of class)
Check whether the issuer (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 report(s,) and (2) has been subject to such filing requirements for the
past 90 days. Yes (X) No( )
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB (X)
The aggregate market value of the voting stock held by non-affiliates of
the Registrant at September 3, 1995 was approximately $183,711.
The number of shares of Registrant's Common Stock outstanding on September
3, 1996 was 4,367,987.
Portions of the Annual Report to Stockholders for the fiscal year ended
June 30, 1996 are incorporated by reference in Part II of this report. Portions
of the Proxy Statement of Registrant dated September 3, 1996 are incorporated by
reference in Part III of this report.
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PART I
ITEM 1. BUSINESS
GENERAL
Hydromer, Inc. (the "Company") is a polymer research and development
company organized as a New Jersey Corporation in 1980 for the purpose of
developing polymeric complexes for commercial markets in the medical and
industrial fields. The Company owns several process and applications patents for
Hydromer(R) ("Hydromer"), which is both a polymeric substance that becomes
extremely lubricious (slippery) when contacted by water and a technique of
grafting or applying this substance onto surfaces which may consist of a wide
variety of materials, including polyurethane, polyvinyl chloride, and metals.
"Hydromer(R)" is a trademark of the Company. The Company has also been issued
patents for a permanent anti-fog material, a hydrophilic polyurethane foam,
hydrophilic polyurethane blends, hydrophilic polyvinylbutyral alloys, several
different biocompatible hydrogels and an anti-bacterial medical material, and
owns a trademark Sea-Slide(R), a coating for boats, which the Company is
marketing. Other patent applications have been filed. See "Patents and
Trademarks" below.
From its inception in 1980 to mid 1984, the Company was engaged primarily
in research and development activities relating to Hydromer coatings. The
Company believes that the polymer and water interface of Hydromer provides a
surface lubricity superior to the quality of other presently marketed
silicone-based lubricants used to treat medical devices. When treated with
Hydromer coating, a medical device becomes highly slippery upon contact with
water, facilitating its insertion into any orifice of the body, in particular,
the nasal/oral, rectal and urinary orifices, or penetration through the skin,
thus reducing discomfort for the patient. Hydromer coatings are bonded to the
medical device unlike silicone-based lubricants which must be re-applied after
each use of the medical device. During its fiscal year ended June 30, 1996, the
Company entered into one license agreement for the use of Hydromer but remained
party to twenty license agreements covering the application of Hydromer coatings
to heart pacemaker leads, wound drains, enteral feeding products, guide wires,
intermittent urinary catheters; certain urological devices, central venous
catheters, ear prostheses, guiding catheters, razor cartridges and angioplasty
balloon catheters, embolization delivery devices, biliary and pancreatic stents
and certain urological devices. See "Option and License Agreements" below.
The Company believes that Hydromer technology may have further application
both in connection with medical products and products outside the medical field.
See "Potential Applications" below.
During the 1986 fiscal year, the Company was granted a U. S. Patent for
hydrophilic polyurethane foam and dental and biomedical products fabricated
therefrom. This foam has been independently tested and exhibits superior
absorptivity, high tensile strength when wet and reduced peel adhesion to the
skin.
In addition to its foregoing activities, the Company is marketing the
following products based on its polymer technology:
Anti-Fog - a coating for plastics (e.g. ski and swim goggles) which
prevents the accumulation of vision-obscuring condensation under high humidity
conditions. A more advanced version of anti-fog coating was patented in August
1984 and is being sold in bulk to manufacturers of industrial safety and swim
goggles, aircraft windows and meter covers. Condensation control coatings have
been developed for use on greenhouses and food packaging.
Sea-Slide(R)- a Hydromer-based drag reducing marine coating which reduces
friction between hull and water, and can be used over most anti-fouling paints.
A U. S. Patent covering this coating and other potential uses was issued in
February 1987.
Cosmetic formulations - aqueous-based polymer blends, were introduced
during 1988 and are protected by the polymer blends patent issued in February
1987. These formulations are being sold to major cosmetic firms for use in hair
dyes, hair conditioners, mascaras, eye shadows and body lotions and are being
tested for use in shampoos and sunscreens.
HYDROMER(TM) Poison Oak and Ivy Barrier, is a barrier lotion that protects
the wearer from the effects of poison ivy, poison oak, poison sumac plant
allergens.
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Until September 1982, approximately 99% of the outstanding common stock,
without par value (the "Common Stock"), of the Company was owned by Biosearch
Medical Products Inc. ("BMP"), which in turn was controlled by Manfred F. Dyck,
who is Chief Executive Officer, a Director and the Chairman of the Board of the
Company. On September 16, 1982, BMP distributed its shareholdings in the Company
pro rata to the holders of its common stock. In connection with this
distribution, the Company granted to BMP an exclusive, world-wide perpetual,
royalty-free license to use the Hydromer technology in connection with the
development, manufacture and marketing of biomedical devices for enteral feeding
applications.
OPTION AND LICENSE AGREEMENTS
A substantial portion of the Company's revenues in prior years and no
revenues in the 1996 fiscal year have been derived from option and license
agreements. The option agreements have in general provided that the customers
pay to the Company a flat fee in exchange for the right during a limited period
of time (i) to use the Hydromer process to determine whether the customer's
products lend themselves to treatment with the process and (ii) to test market
such products. The option agreements have also given the customers the right
subsequently to enter into a license agreement with the Company. At the
customer's option, a license agreement with respect to the marketing of a
product treated with Hydromer may then be entered into, providing for payment to
the Company of an initial flat fee, followed by periodic royalty payments based
on sales.
The Company has previously reported license agreements in effect relating
to applications of the Hydromer as follows: (See Annual Report on Form 10-K for
the fiscal years ended June 30, 1983 through 1995 and Form 10-KSB for fiscal
year ended 1996.)
LICENSEE/APPLICATION
Arrow International, Inc. polyurethane-jacketed guidewires.
Axiom Medical, Inc. wound drains.
Biosearch Medical Products Inc. enteral feeding systems, intermittent urinary
catheters, stents and electronic probes.
Cordis Corporation angioplasty balloon catheters.
Cordis Endovascular Systems infusion microcatheters.
CR Bard (formally St. Jude Medical, Inc.) intra-aortic balloon catheters,
introducer systems and introducer needles.
Film Specialties, Inc. use anti-fog on adhesive backed film.
Medispo (formally Cosmo Ikko) certain urological devices.
HPK International hemorrhoid treatment product (agreement terminated in fiscal
year 1996).
IE Sensors, Inc. partial pressure oxygen sensor (agreement terminated in fiscal
year 1996).
Interventional Therapeutics, Inc. embolization delivery devices(agreement
terminated in fiscal year 1996).
Johnson & Johnson Orthopaedics Inc. casting gloves.
Kendall HealthCare Products certain urological devices.
Ohmeda (formally U. S. Viggo, Inc.) central venous catheters.
Smith & Nephew (formally Richards Medical) ear prostheses.
Schneider Stent USA delivery devices for expandable stents.
Surgtek (Division of Cabot Medical) guidewires, urinary stents.
Boston Scientific (Van-Tec) guide wires and certain urological devices.
Wilkinson Sword Ltd. razor cartridges.
Boston Scientific (SCIMED Peripheral Interventions) polyurethane jacketed
guidewires.
Piolax (formally Katoh Hatsujyo Kaisha, LTD) polyurethane jacketed guidewires.
During fiscal year 1996, the Company entered into one license agreement.
In June 1996, the Company entered into a non-exclusive license agreement
with Biosearch Medical Products Inc. (Biosearch), pursuant to which they were
granted the non-exclusive right to coat
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intermittent urinary catheters. Biosearch is obligated to make royalty payments
on a fixed rate per unit sold of coated product. In addition, Biosearch must
meet annual minimum royalty levels in order to maintain their right to use
Hydromer technology. The license will remain in effect until the expiration of
the licensed patents or failure to meet annual minimum royalties.
PRODUCTS
Coating solutions for use on medical devices are manufactured and sold by
the Company to its licensees and others. The Company has received a United
States and foreign patents for a permanent type anti-fog coating. The Company is
selling bulk quantities of anti-fog solution to manufacturers of swim goggles,
industrial safety equipment, aircraft windows and meter covers, both in the
U.S. and foreign countries.
The Company has developed a condensation control coating for use on
structured greenhouse coverings. Which it sells to a major corporation that
manufactures this material in the U. S. and Europe.
A food packaging coating has been formulated using only materials that are
generally recognized as safe for food contact and independent laboratory
extraction tests of the coating have demonstrated that the extractibles are well
within levels specified by the FDA.
Another product introduced in 1984 was "Sea-Slide(R)", a drag reducing
overcoating for boats and ships. This product is designed to improve fuel
efficiency by lowering the friction between hull and water. It is being marketed
through a repackager and distributor who services the marine industry.
Sea-Slide(R) has been shown at major marine shows. Bulk quantities are also
being sold to distributors in Europe who package the product for local markets.
In the 1988 fiscal year, the Company introduced aqueous-based formulations
for use as a component in beauty aids. This product is being marketed through
distributors in the U.S. and abroad and is currently being sold for use in
mascaras, hair dyes, hair conditioners, hair shampoos, eye shadows, hair
colorings, hair sprays, body lotions and perfumes.
In the 1995 fiscal year the Company introduced our very first consumer
oriented product, Hydromer(R) Poison Oak and Ivy Barrier. We have developed
national accounts for this product representing a cross section of pharmacies,
sporting goods and specialty stores (country clubs, campsites, resorts). We also
are seeing a great deal of interest from the tree care, landscaping and utility
lines clearance industries. Chain drug stores and mass marketers have also
indicated an interest in Hydromer(TM) Poison Oak and Ivy Barrier and are
targeted for fiscal 1997.
During the twelve months ended June 30, 1996, revenues of $632,307 were
realized from sales of products, as compared with $583,638 in the fiscal year
ended June 30, 1995.
The Company's processes utilize various chemicals purchased from a number
of companies. The Company's primary suppliers are Elco Solvents, Inc. Avenel, NJ
and TR Metro Chemical, Inc. of Ridgefield, NJ. The Company has no long-term
contracts with any of its suppliers and believes that there are adequate
alternative sources of supply available for all raw materials that it currently
uses.
DEPENDENCE UPON CUSTOMERS
The Company derives substantially all of its revenues from one business
segment, i.e. polymer research and products derived therefrom. During the fiscal
year ended June 30, 1996, the Company recognized revenues from two major
customers.
In fiscal year 1996, Cordis Corporation and Phoenix Chemical Inc.
contributed $215,777 or 13.9%, and $208,290 or 13.4%, to the total revenues of
the Company. Cordis purchases Hydromer coating and Phoenix purchases cosmetic
formulations for distribution to major cosmetic manufactures.
POTENTIAL APPLICATIONS
The Company continues to explore other applications of the complexing
capabilities of polymeric substances, such as antimicrobial agents. The Company
currently is working on further applications of its patented technologies to
existing products of other companies, including cosmetics, wound dressings, and
a wide variety of medical devices. These products and applications are in the
preliminary development stage and are subject to substantial further development
before their feasibility can be verified.
On the basis of its market analyses, as well as laboratory and in vitro
testing of certain applications
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<PAGE>
of Hydromer, the Company believes that Hydromer's potential product
applications, classified with reference to salient Hydromer characteristics, are
as follows:
1. Low Co-efficient of Friction. Hydromer is a hydrophilic coating which when
contacted by water becomes extremely lubricious. The Company believes that this
unique feature would prove beneficial to any medical device that is inserted
into the body. Medical products that would so benefit include:
urinary products - urethral catheters and urinary
drainage systems;
rectal products - enemas, rectal tubes, examination
gloves and proctoscopy
devices (disposable);
nasal/oral products - suction catheters, oxygen
catheters and endotracheal
tubes;
cardiovascular and - grafts, cardiac assist catheters
related products heart-lung tubing.
2. Ability to be Complexed with Other Functional Chemicals. The Hydromer
hydrophilic polymer coating can be complexed with other chemicals. For example,
Hydromer coating complexed with iodine forms an effective antimicrobial barrier.
The Company believes that this unique feature would lend itself to application
on a wide variety of currently marketed medical products, including Foley
catheters, wound drains, wart and corn dressings, burn dressings, intravenous
catheters, surgical dressings and adhesive bandages.
3. Cross-link Density Can be Controlled. The Hydromer hydrophilic polymer
coating, through controlled cross-linking, has been further developed into a
special anti-fog coating. Such a coating is (a) resistant to fogging under a
wide range of temperature/humidity conditions; (b) transparent and has
heat/light stability; (c) long lasting, i.e., will not chip or peel and offers
more scratch resistance than do most commercial plastics; (d) inert to most
commercial glass cleaners; (e) less prone to static dirt pickup; and (f)
applicable by dip, spray or roll coating. A U. S. Patent for this material was
issued to the Company in August 1984. This anti-fog product has use on sports
goggles, windows, mirrors and other products, either by direct application or by
coating of an adhesive backed film. Food grade versions are available for
packaging of fresh produce, meats and deli-foods.
RESEARCH AND DEVELOPMENT
The Company's research and development activities presently are, and during
the next year are expected to be, devoted primarily to the development and
enhancement of the products described above and to the design and development of
new products. The Company incurred expenses of approximately $498,000 during the
twelve months ended June 30, 1996, approximately $575,000 during the twelve
months ended June 30, 1995, and approximately $465,000 during the twelve months
ended June 30, 1994. All of such activities were sponsored by the Company. The
major portion of such expenses was applied toward salaries and other expenses of
personnel employed on a regular basis in such work. See "Employees" below. The
Company plans to maintain R & D spending at approximately the 1996 level during
fiscal 1997. See "Potential Applications" above.
COMPETITION
The Company considers the most significant competitive factors in its
market for its patented coatings to be product capability and performance
(including reliability and ease of use), in addition to price and terms of
purchase.
The Company owns both process patent and applications patents for Hydromer
coatings (see "Patents and Trademarks" below) which have approximately two years
remaining on their terms. Although the medical products market is highly
competitive, the Company does not believe that there is any other product
available which performs functions significantly comparable to those which are
performed by Hydromer, in terms of lubricity, complexing capabilities,
durability and cost.
While management believes the Company has a dominant position in the market
for medical device coatings in which it competes, and that its hydrophilic foam,
anti-fog coatings and hydrogel products are technologically superior to other
products in the market, there can be no assurance that alternatives, with
similar properties and applications, could not be developed outside the scope of
the Company's patents by other companies. The Company is aware that there are
other similar technologies available and/or being developed by
13
<PAGE>
others. The industry in which the Company competes is characterized by rapid
technological advances and includes competitors that possess significantly
greater financial resources and research and manufacturing capabilities, larger
marketing and sales staffs and longer established relationships with customers
than the Company does at present or will for the foreseeable future.
MARKETING
The Company intends to market its products and services through four
principal means:
1. Sale of Development Services: The Company intends to move its effort away
from straight technology licensing and toward contract product development. The
Company has significant expertise in polymer development and applications. By
exhibiting at selected trade shows in the medical device and cosmetic fields,
the Company expects to generate interest in its technology and products, with a
view toward acting as an outside product development arm for companies in these
fields.
2. Joint Development: The Company will continue to seek joint development
programs, comarketing programs and other business arrangements with potential
partners.
3. Direct and Indirect Product Marketing: Retail product(s) are marketed and
sold directly to consumers and through wholesalers and stores. Coating solutions
for medical devices and condensation control coatings are marketed directly to
manufacturers of products to which they are applied. Sea-Slide coating is being
marketed through independent sales organizations, serving primarily a regional
market. Cosmetic formulations are being marketed by U.S. and international
distributors and, internally, directly to cosmetic companies.
4. Licensing: The Company will continue its endeavors to license its technology
to current market leaders in the medical device, pharmaceutical, and other
fields, whereby the Company will grant exclusive or non-exclusive rights for the
Hydromer coating treatment of existing or new products, and the development of
specific products utilizing its foam technology under its patents. In return,
the Company generally would earn royalties based on sales of such treated or new
products. Such licenses will usually be very narrow. The activities leading to
the consummation of a license agreement normally are lengthy and require
establishing a scientific dialogue with potential customers, treating samples
supplied by that customer with Hydromer coatings, determining if the treatment
is feasible and cost effective, testing the coated products in a laboratory and
then negotiating a mutually acceptable option agreement. An option fee may be
paid by the customer which would give the customer exclusive rights to use the
Hydromer treatment on the specified product for a specified period. During such
period, the optionee can test market the coated product and/or determine its
ability to treat the product in its own manufacturing process. If the customer
determines that the subject product should be treated with Hydromer coating on a
commercial basis, it may either perform the Hydromer coating treatment itself
under a license agreement with the Company or it may have the a third party
perform the Hydromer coating treatment.
PATENTS AND TRADEMARKS
The Company owns both a United States process patent and an applications
patent for Hydromer, which were due to expire in 1995 but have been extended for
about two years. The Company contemplates that it will retain such patents until
such date. The Company has granted to BMP an exclusive, royalty-free license of
the Hydromer process with respect to enteral feeding products. In addition,
there are currently sixteen issued foreign patents and one foreign patent
application pending for Hydromer. Management believes that the protection
afforded by the Hydromer patents until mid-to-late 1997 and 1998 will be a
significant factor in the Company's ability to market its hydrophilic polymers.
Anticipating patent expiration, the Company has focused on licensing and
developing products based upon its newer technologies. The Company has also been
issued United States and foreign patents for a permanent anti-fog. A U. S.
patent was issued in October 1985 for a hydrophilic polyurethane foam that is
expected to have numerous medical applications. Foreign patents covering this
material issued in July 1990. A U. S. patent for hydrophilic polymer blends,
which covers the Company's coating for boats and the cosmetic formulations, was
issued in February 1987. A U. S. Patent has been received for Hydrophilic
Polyvinylbutyral Alloys was issued in July 1989 and foreign applications are
pending. This patent protects the condensation control
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<PAGE>
coatings that have been developed for greenhouses and food packaging. U. S. and
foreign patents have also been issued for an anti-bacterial medical material
that can be incorporated in a foam or as a coating. The Company has submitted a
United States patent application in respect of its new composition, barrier
film, and method for preventing contact dermatitis developed by the company's
research and development staff.
The Company owns the registered trademark "Hydromer" in the United States
and other countries.
EMPLOYEES
As of June 30, 1996, the Company had eleven full-time employees, consisting
of six engaged in research and development, quality control and assurance,
coating of products for others and mixing of chemicals for the Company's
products, one in marketing and four in general administrative and executive
functions. The chief executive officer duties were assumed by Manfred F. Dyck,
Chairman of the Board, who agreed to serve the Company for a minimum of two and
one-half days per month. The Company does not have a collective bargaining
agreement with any of its employees and considers its relationship with its
employees to be excellent.
GOVERNMENT REGULATIONS
The Company's medical products come under the jurisdiction of the FDA, as
well as other federal, state and local agencies, and similar agencies in other
countries.
In connection with the Company's license agreements, it is generally the
obligation of the licensee to conform to any required FDA pre-market
notification or other regulations. To the Company's knowledge, all such
licensees who are marketing FDA regulated licensed products are in such
compliance. The Company may in the future desire to market additional
applications of Hydromer to existing products, or products introduced by it,
which may be subject to such FDA approval procedures as proof of safety and
effectiveness of the applications or products, or adherence to prescribed design
standards. There can be no assurance that such approvals would be forthcoming or
of compliance with such standards. Any such failure to obtain approvals or
non-compliance might have a significant adverse effect on the Company. However,
the Company intends to make every effort to obtain all necessary approvals and
to comply with such standards, and in the case of its licensed applications, to
require the licensees to obtain such approvals.
The Company does not manufacture medical products and therefore does not
come under the jurisdiction of the FDA nevertheless, it is the policy of the
Company to adhere to "Good Manufacturing Practices" during manufacturing of
Hydromer coatings.
The Company is also subject to federal and state regulations dealing with
occupational health and safety and environmental protection. It is the policy of
the Company to comply with these regulations and be responsive to its
obligations to its employees and the public.
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
Name Position with Company
- ---------------------- ------------------------
Manfred F. Dyck Chairman of the Board,
Chief Executive Officer
and President
Age at August 31, 1996 - 61
Name
- ----------------------
Mark Klypka Chief Financial Officer
Vice President Finance
& Administration
Age at August 31, 1996 - 42
Name
- ----------------------
Curtis L. Karl Vice President Research
& Development
Age at August 31, 1996 - 56
Name
- ----------------------
Robert D. Frawley Secretary and Corporate
Counsel
Age at August 31, 1996 - 48
Manfred F. Dyck has been Chairman of the Board of the Company since June
1983 and a Director of the Company since its inception. Mr. Dyck served as Chief
Executive Officer of the Company from its inception until October 1986, and
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<PAGE>
as of August 1989, reassumed the duties of Chief Executive Officer. Mr. Dyck has
been President and a Director of Biosearch Medical Products Inc. since 1975.
Mark Klypka has been Vice President of Finance and Administration and Chief
Financial Officer since May, 1995. Prior to joining the Company, Mr. Klypka had
been Vice President Treasurer for Bergen Commercial Bank, since October 1993,
Vice President Controller for First Morris Bank since June 1989.
Curtis L. Karl, Ph.D., has been Vice President of Research and Development
since April 1993. Dr. Karl also served as Director of Research and Development
for the Company from October, 1991 until his election as Vice President. Prior
to joining the Company, Dr. Karl was a research scientist with Union Carbide
since 1988.
Robert D. Frawley has been Secretary of the Company since January 1984. Mr.
Frawley has been an attorney in private practice since December 1985. He is
employed by the law firm of Smith, Stratton, Wise, Heher and Brennan, Princeton,
New Jersey in February 1994. From December 1983 to December 1985, Mr. Frawley
was Vice President - Corporate Counsel and Secretary of Bicsearch Medical
Products Inc.
ITEM 2. PROPERTIES
The Company currently has one facility located in New Jersey. The
manufacturing research and development administrative and marketing functions of
the Company are located at 35 Columbia Road, Branchburg, New Jersey. The Company
signed a five year lease with a party not affiliated with the Company for the
Branchburg facility. The total value of the lease over the five year period is
$435,000. Future minimum rental commitments for the next five years as of June
30, 1996 on the aforementioned operating lease are as follows:
Fiscal year Operating Lease
- ----------- ----------------
1997 $75,000
1998 $79,375
1999 $91,250
2000 $101,875
2001 $43,750
The facilities will be adequate for the Company's operations for the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Prior to January 9, 1986, the Company's Common Stock was traded in the
Over-the-Counter Market on the National Association of Securities Dealers'
Automated Quotation System (NASDAQ) UNDER THE SYMBOL HYDI. Subsequent to January
9, 1986, reporting of trading was transferred to the National Daily Quotation
Service (commonly known as "Pink Sheets"). For the past seven years, trading in
the Company's stock has been limited. The Company has been informed by
individual investors of trades at bid prices ranging between $.50 and $.03125 in
fiscal year 1994 and between $.25 and $.03125 in fiscal year 1995. Prices for
the 1996 fiscal year have ranged between $.1875 and $.0625 according to the
National Quotation Bureau, Inc.. These prices may not include retail mark-ups or
mark-downs or ant commissions to the broker dealer.
The approximate number of holders of record of the Common Stock on August
30, 1996 was 331.
Hydromer, Inc. has never declared nor paid dividends. The payment of
dividends in the future would depend, among other things, upon the earnings and
financial condition of the Company.
16
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The discussion below analyzes major factors and trends regarding the
results of operations and the financial condition of the Company as of June 30,
1996, and its results of operations for prior fiscal periods. It should be read
in conjunction with the Financial Statements and Notes thereto.
RESULTS OF OPERATIONS
Revenues of $1,552,358 in the 1996 fiscal year were $385,450 greater than
the $1,166,902 of revenues recorded in the 1995 fiscal year. Royalty income of
$920,051 was $336,787 or 58% greater than the $583,264 recorded in the 1995
fiscal year. Sales of coating solutions and chemicals sold to licensees were
$188,024 as compared to $209,041 in the previous fiscal year. Sales of anti-fog
coating solutions and other condensation control solutions were $210,932, as
opposed to $203,703 in the previous fiscal year. The 4% increase is due to an
increase in the selling price for both the condensation control and anti-fog
solutions. Sales of cosmetic ingredients were $226,439, as opposed to $167,768
in the previous fiscal year. Other miscellaneous revenues were $6,912 as
compared to $3,126 in the 1995 fiscal year.
Cost of sales of $230,626 or 36% of the sales of products and services in
the 1996 fiscal year were $46,403 greater than the $184,223, or 32% of the sales
of products and services in the 1995 fiscal year. The percentage of cost of
sales increased 4% due to the change in the product mix as compared to the
previous fiscal year.
In fiscal year 1996 the Company had net income of $76,046 as compared to a
net loss of $186,885 for fiscal year 1995, reflecting a increase of $262,931.
The increase in net income was primarily a result of the increase in royalty
income. The Company's gross profit of 85% in fiscal 1996 was relatively
unchanged from the 84% in fiscal 1995. The reason for the flat gross profit can
be attributed to the combination of the change in product mix and the increase
in royalty income.
Selling, general and administrative expenses in the 1996 fiscal year of
$845,675, or 54% of revenues were $97,628, or 13% greater than the $748,047, or
64% of revenues reported fiscal 1995. Research and development expenses of
$498,572 or 32% of revenues were $76,458, or 13% less than the $575,030, or 49%
of revenues fiscal 1995. The increases in total expenses were a result of
increased costs associated with the hiring of a Director of Sales and Marketing
for Cosmetics.
Interest income was earned in the amount of $10,483 and $45,507 in the
fiscal years ended June 30, 1996 and 1995, respectively, on short-term
investments. The decrease was attributed to the use of short-term investments
for the purchase of capital equipment and the increase of inventory of both raw
materials and finished goods. Included in other income is $85,000 the company
received as a settlement with its former auditors regarding prior period income
tax liabilities owed as a result of being classified as a personal holding
company.
Reflecting the predominant research and development nature of the Company's
activity to date, the Company has a cumulative loss of $2,531,317 as of June 30,
1996.
Provision for income taxes was $100 and $(122,445) in the 1996 and 1995
fiscal years, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Working capital as of June 30, 1996 was $608,117.
Management believes that the Company will continue to generate sufficient
funds to maintain its current level of operation as existing licensees continue
to increase the volume of products they are coating, additional licenses are
negotiated for use of the Hydromer(R) coating and the anti-fog coatings gain
greater recognition in the market place. Other products that could significantly
increase future revenues are Hydromer Poison Oak & Ivy Barrier.
The major components of the Company's current assets are cash, cash
equivalents and accounts receivable. Inflation has not been a major factor in
past operations of the Company. The Company believes that its products are
sufficiently unique to permit recovery of inflationary cost increases in its
pricing.
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<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This information is contained on pages 25 through 33 hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning this item, see "Item 1. Business - Executive
Officers" and page 2 of the Proxy Statement contained hereof.
ITEM 10. EXECUTIVE COMPENSATION
This information is contained on pages 3 and 4 of the Proxy Statement
contained hereof.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is contained on page 3 of the Proxy Statement contained
hereof.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is contained on pages 3 through 5 of the Proxy Statement
contained hereof.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS:
Page
----
Independent Auditors' Report........................... 32
Balance Sheets as of June 30, 1996, 1995 23
Statements of Income for the years ended
June 30, 1996, 1995......................... 24
Statements of Shareholders' Equity for
the years ended June 30, 1996
1995........................................ 25
Statements of Cash Flow for the years
ended June 30, 1996, 1995................... 26
Notes to Financial Statements.......................... 27
(A) 2. FINANCIAL STATEMENT SCHEDULES:
The financial statement schedules of the Company filed in this Report are
listed in the attached Index to Financial Statements and Supplementary Data.
(A) 3. EXHIBITS (NOT INCLUDED)
The exhibits required to be filed as part of this Report are listed in the
attached Index to Exhibits.
(B) CURRENT REPORTS ON FORM 8-K:
The Company has not filed any Current Reports on Form 8-K during the
quarter ended June 30, 1996.
18
<PAGE>
POWER OF ATTORNEY
The Company and each person whose signature appears below hereby appoint
Manfred F. Dyck and Robert D. Frawley as attorneys-in-fact with full power of
substitution, severally, to execute in the name and on behalf of the registrant
and each such person, individually and in each capacity stated below, one or
more amendments to the annual report which amendments may make such changes in
the report as the attorney-in-fact acting deems appropriate and to file any such
amendment to the report with the Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
HYDROMER, INC.
/s/ MANFRED F. DYCK President Principal Executive September 6, 1996
- ------------------- Officer Chairman of the Board
Manfred F. Dyck of Directors
/s/ MARK KLYPKA Vice President Finance & September 6, 1996
- ------------------- Administration Chief
Mark Klypka Financial Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
/s/ MANFRED F. DYCK President Principal Executive September 6, 1996
- ------------------- Officer Chairman of the Board
Manfred F. Dyck of Directors
/s/ URSULA M. DYCK Director September 6, 1996
- ------------------
Ursula M. Dyck
- ------------------- Director September , 1996
Dieter Heinemann
/s/ MAXWELL BOROW Director September 6, 1996
- ------------------
Maxwell Borow
/s/ ROBERT H. BEA Director September 6, 1996
- ------------------
Robert H. Bea
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<PAGE>
INDEX TO EXHIBITS
3.a Certificate of Incorporation of the Company, as amended to date.
3.b By-Laws of the Company, as amended to date.
10.a Minutes of Meeting of the Board of Directors of the Company held on
March 5, 1981 with respect to stock options granted to Manfred F. Dyck
(Incorporated by reference to Exhibit 10.i to the Registration Statement).
10.b Agreement dated August 11, 1981 between Horizon Concepts, Inc., and
the Company (Incorporated by reference to Exhibit 10.c to the Registration
Statement).
10.c Agreement dated January 27, 1982 between Reliable Pharmaceutical
Company, Inc. and the Company (Incorporated by reference to Exhibit 10.d to the
Registration Statement).
10.d License Agreement dated July 14, 1982 between Biosearch Medical
Products Inc. and the Company (Incorporated by reference to Exhibit 10.g to the
Registration Statement).
10.e Management Services Agreement dated July 14, 1982 between Biosearch
Medical Products Inc. and the Company (Incorporated by reference to Exhibit 10.h
to the Registration Statement).
10.f Amendment dated October 7, 1982 to Agreement dated January 27, 1982
between Reliable Pharmaceutical Company, Inc. and the Company, together with
letter dated October 14, 1982 from Reliable Pharmaceutical Company, Inc. to the
Company (Incorporated by reference to Exhibit 10.f to the 1983 Annual Report).
10.g Hydromer Coating agreement dated February 11, 1983 between Pacesetter
Systems, Inc. and the Company (Incorporated by reference to Exhibit 10.g to the
1983 Annual Report).
10.h Lease Agreement dated April 5, 1983 between Salem Realty and the
Company (Incorporated by reference to Exhibit 10.h to the 1983 Annual Report).
10.i License Agreement dated April 25, 1983 between CardioSearch Inc. and
the Company (Incorporated by reference to Exhibit 10.i to the 1983 Annual
Report).
10.j Trademark License Agreement dated April 25, 1983 between CardioSearch
Inc. and the Company (Incorporated by reference to Exhibit 10.j to the 1983
Annual Report).
10.k Agreement dated August 31, 1983 between Becton, Dickinson & Company
and the Company (Incorporated by reference to Exhibit 10.l to the 1983 Annual
Report).
10.l Current Report on Form 8-K filed May 30, 1986.
10.m Hydromer Coating License Agreement dated September 30, 1984 between
Axiom Medical, Inc. and the Company (Incorporated by reference to Exhibit 10.m
to the 1984 Annual Report).
10.n 1982 Stock Option Plan of the Company (Incorporated by reference to
Exhibit 10.m to the 1983 Annual Report).
10.o Amendment dated June 26, 1984 to Agreement dated August 3, 1983
between Becton, Dickinson & Company and the Company (Incorporated by reference
to Exhibit 10.o to the 1984 Annual Report).
10.p License Agreement dated July 31, 1984 between Kendall Company and the
Company (Incorporated by reference to Exhibit 10.p to the 1984 Annual Report).
10.q License Agreement dated March 1, 1985 between Van-Tec Inc. and the
Company and Letter of Amendment thereto dated June 13, 1985 (Incorporated by
reference to Exhibit 10.o to the 1985 Annual Report).
10.r Telex dated June 24, 1985 terminating License Agreement with
CardioSearch Inc. (Incorporated by reference to Exhibit 10.p to the 1984 Annual
Report).
10.s Amendment dated as of December 31, 1984 to Management Services
Agreement dated July 14, 1982 between Biosearch Medical Products Inc. and the
Company (Incorporated by reference to Exhibit 10.q to the 1985 Annual Report).
10.t Lease Renewal Agreement dated April 15, 1985 between Salem Realty and
the Company
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<PAGE>
(Incorporated by reference to Exhibit 10.r to the 1985 Annual Report).
10.u Lease Agreement dated December 4, 1984 between Biosearch Medical
Products Inc. and the Company (Incorporated by reference to Exhibit 10.s to the
1985 Annual Report).
10.v License Agreement dated April 11, 1986 between Axiom Medical, Inc. and
the Company (Incorporated by reference to Exhibit 10.i to the 1986 Annual
Report).
10.w License Agreement dated September 13, 1985 between U. S. Viggo and the
Company (Incorporated by reference to Exhibit 10.c to the 1986 Annual Report).
10.x License Agreement dated March 27, 1986 between Wilkinson Sword Limited
and the Company (Incorporated by reference to Exhibit 10.f of the 1986 Annual
Report).
10.y Lease Renewal Agreement dated April 15, 1987 between Salem Realty and
the Company (Incorporated by reference to Exhibit 10.y to the 1987 Annual
Report).
10.z License Agreement dated April 30, 1986 between HPK International and
the Company (Incorporated by reference to Exhibit 10.j to the 1986 Annual
Report).
10.aa License Agreement dated August 1, 1986 between Film Specialties, Inc.
and the Company (Incorporated by reference to Exhibit 10.aa to the 1987 Annual
Report).
10.ab Lease Renewal Agreement dated April 15, 1988 between Salem Realty and
the Company (Incorporated by reference to Exhibit 10.ab to the 1988 Annual
Report).
10.ac License Agreement dated June 30, 1987 between Richards Medical
Company and the Company (Incorporated by reference to Exhibit 10.ac to the 1988
Annual Report).
10.ad License Agreement dated December 1, 1987 between Mallinckrodt, Inc.
and the Company (Incorporated by reference to Exhibit 10.ad to the 1988 Annual
Report).
10.ae Option Agreement dated January 28, 1988 between Cordis Corporation
and the Company (Incorporated by reference to Exhibit 10.ae to the 1988 Annual
Report).
10.af Lease Agreement dated April 15, 1988 between Biosearch Medical
Products Inc. and the Company (Incorporated by reference to Exhibit 10.ag of the
1988 Annual Report).
10.ag Letters dated June 11, 1987 and September 22, 1987 to U. S. Viggo,
Inc. modifying License Agreement dated September 13, 1985, to cover only central
venous catheters (Incorporated by reference to Exhibit 10.ag to the 1988 Annual
Report).
10.ah Lease Renewal Agreement dated April 15, 1989 between Salem Realty and
the Company (Incorporated by reference to Exhibit 10.ah to the 1989 Annual
Report).
10.ai Amendment dated October 1, 1988 to License Agreement dated September
13, 1985, between U. S. Viggo and the Company (Incorporated by reference to
Exhibit 10.ai to the 1989 Annual Report).
10.aj License Agreement dated October 20, 1988 between Cordis Corp. and the
Company (Incorporated by reference to Exhibit 10.aj to the 1989 Annual Report).
10.ak License Agreement dated March 31, 1989 between Cathlab Corp. and the
Company (Incorporated by reference to Exhibit 10.ak to the 1989 Annual Report).
10.al Amendment dated December 1, 1988 to License Agreement dated August 1,
1986 between Film Specialties, Inc. and the Company (Incorporated by reference
to Exhibit 10.al to the 1989 Annual Report).
10.am Finders Agreement dated August 20, 1987 between Phoenix Chemical,
Inc. and the Company (Incorporated by reference to Exhibit 10.am to the 1989
Annual Report).
10.an License Agreement dated September 10, 1989 between the Stent Division
of Schneider and the Company (Incorporated by reference to Exhibit 10.an to the
1990 Annual Report).
10.ao License Agreement dated March 30, 1990 between Cosmo Ikko Company and
the Company (Incorporated by reference to Exhibit 10.ao to the 1990 Annual
Report).
10.ap License Agreement dated April 12, 1990 between Interventional
Therapeutics, Inc. and the Company and amendment dated May 7, 1990 to the
Agreement dated April 12, 1990 between Interventional Therapeutics, Inc. and the
Company (Incorporated by reference to Exhibit 10.ap to the 1990 Annual Report).
21
<PAGE>
10.aq Amended License Agreement dated January 1, 1990 between the Wilkinson
Sword group of companies and the Company (Incorporated by reference to Exhibit
10.aq the 1990 Annual Report).
10.ar Lease Agreement dated April 15, 1990 between Salem Realty and the
Company (Incorporated by reference to Exhibit 10.ar to the 1990 Annual Report).
10.as Amendment to the Agreement dated July 31, 1984 between Kendall
Company and the Company (Incorporated by reference to Exhibit 10.as to the 1990
Annual Report).
10.at License Agreement dated January 11, 1991 between Biosearch Medical
Products Inc. and the Company (Incorporated by reference to Exhibit 10.at to the
1991 Annual Report).
10.au License Agreement dated May 16, 1991 between I E Sensors and the
Company (Incorporated by reference to Exhibit 10.au to the 1991 Annual Report).
10.av Lease Renewal Agreement dated April 15, 1991 between Salem Realty and
The Company (Incorporated by reference to Exhibit 10.av to the 1991 Annual
Report).
10.aw License Agreement dated July 25, 1991 between Johnson & Johnson
Orthopaedics and the Company (Incorporated by reference to Exhibit 10.aw to the
1992 Annual Report).
10.ax License Agreement dated August 19, 1991 between Navarre Laboratories
Ltd. and the Company (Incorporated by reference to Exhibit 10.ax to the 1992
Annual Report).
10.ay Amended License Agreement dated September 15, 1991 between Boston
Scientific Corp. and the Company (Incorporated by reference to Exhibit 10.ay to
the 1992 Annual Report).
10.az Option/License Agreement dated September 23,1991 between Elan Corp.
PLC and the Company (Incorporated by reference to Exhibit 10.az to the 1992
Annual Report).
10.ba Lease Agreement dated November 1, 1991 between Morton Street Realty
and the Company (Incorporated by reference to Exhibit 10.ba to the 1992 Annual
Report).
10.bb License Agreement dated August 17, 1992 between SCIMED Peripheral
Interventions, division of SCIMED Life Systems, Inc. and the Company.
(Incorporated by reference to Exhibit 10.bb to the 1993 Annual Report).
10.bc License Agreement dated March 9, 1993 between Arrow International,
Inc. and the Company. (Incorporated by reference to Exhibit 10.bc to the 1993
Annual Report).
10.bd License Agreement dated April 28, 1993 between St. Jude Medical, Inc.
and the Company. (Incorporated by reference to Exhibit 10.bd to the 1993 Annual
Report).
10.be License Agreement dated November 11, 1993 between Katoh Hatsujyo
Kaisha, Ltd. and the Company. (Incorporated by reference to Exhibit 10.bd to the
1994 Annual Report).
10.bf Lease Agreement dated June 9, 1995 between Salem Realty and the
Company (Incorporated by reference to Exhibit 10.bf to the 1995 Annual Report).
10.bg Amendment dated September 20, 1995 to License Agreement dated April
28, 1993 between St. Jude Medical, Inc. and the Company.
10.bh License Agreement dated April 12, 1990 between Interventional
Therapeutics and the Company was terminated effective December 22, 1995.
10.bi License Agreement dated May 16, 1991 between I E Sensors and the
Company was terminated effective December 31, 1995.
10.bj Consented to the assignment of license agreement dated April 28,1993
between St. Jude Medical, Inc. and the Company to CR Bard dated January 18,
1996.
10.bk License Agreement dated April 30, 1986 between HPK International and
the Company was terminated effective February 19, 1996.
10.bl License Agreement dated June 6, 1996 between Biosearch Medical
Products Inc. and the Company.
13 Annual Report to Shareholders for the fiscal year ended June 30, 1995.
25 Power of Attorney (see "Power of Attorney" in the Annual Report on Form
10-KSB).
22
<PAGE>
HYDROMER, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents..................................................... $ 167,900 $ 41,030
Trade receivables less allowance for doubtful accounts of $8,831 and
$26,000 in 1996 and 1995,respectively ...................................... 316,271 268,409
Marketable investment securities.............................................. - 271,364
Inventory..................................................................... 171,360 81,371
Prepaid expenses.............................................................. 45,262 8,546
Deferred tax asset............................................................ 61,248 61,248
- ---------------------------------------------------------------------------------------------------------------------------
Total Current Assets................ ............................................ 762,041 731,968
Property and Equipment, net...................................................... 222,514 183,259
Deferred Tax Asset............................................................... 61,247 61,247
Other Assets..................................................................... 9,875 9,800
- ---------------------------------------------------------------------------------------------------------------------------
$ 1,055,677 $ 986,274
===========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.............................................................. $ 22,356 $ 27,999
Accrued expenses.............................................................. 70,261 31,736
Income tax payable............................................................ 59 38,563
- ---------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 92,676 98,298
- ---------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity
Common stock - no par value, authorized 6,000,000 shares, issued
and outstanding, 4,378,904 shares........................................... 2,922,708 2,922,708
Contributed capital........................................................... 577,750 577,750
Accumulated deficit........................................................... (2,531,317) (2,607,363)
Unrealized gain on marketable investment securities........................... - 1,021
Treasury stock, 10,917 common shares at cost.................................. (6,140) (6,140)
- ---------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 963,001 887,976
- ---------------------------------------------------------------------------------------------------------------------------
$ 1,055,677 $ 986,274
===========================================================================================================================
</TABLE>
See notes to the financial statements.
23
<PAGE>
HYDROMER, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended June 30,
1996 1995
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES:
Product sales and services.................................................... $ 632,307 $ 583,638
Royalties, options and licenses Fees.......................................... 920,051 583,264
- -------------------------------------------------------------------------------------------------------------------------
1,552,358 1,166,902
Cost of Product Sales............................................................ 230,626 184,223
- -------------------------------------------------------------------------------------------------------------------------
Gross profit................................................................ 1,321,732 982,679
Selling, General and Administrative.............................................. 845,675 748,047
Research and Development......................................................... 498,572 575,030
- -------------------------------------------------------------------------------------------------------------------------
Operating (loss)............................................................ (22,515) (340,398)
Interest Income.................................................................. 10,483 47,507
Interest Expense................................................................. (253) (16,439)
Gain on Sale of Securities....................................................... 1,851 -
Other Income..................................................................... 86,580 -
- -------------------------------------------------------------------------------------------------------------------------
Income (loss) before provison for income taxes.............................. 76,146 (309,330)
Provision for Income Taxes Expense (Benefit)..................................... 100 (122,445)
- -------------------------------------------------------------------------------------------------------------------------
Net Income (Loss)........................................................... $ 76,046 $ (186,885)
=========================================================================================================================
Income (Loss) Per Common Share.............................................. $ .017 $ (.043)
=========================================================================================================================
Weighted Average Common Shares Outstanding....................................... 4,367,987 4,367,987
=========================================================================================================================
</TABLE>
See notes to the financial statements.
24
<PAGE>
HYDROMER, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Year Ended June 30,
1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK:
Shares........................................................................ 4,378,904 4,378,904
Amount........................................................................ $ 2,922,708 $ 2,922,708
- -----------------------------------------------------------------------------------------------------------------------
Contributed capital.............................................................. 577,750 577,750
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) on marketable investment securities (beginning)........... 1,021 (62)
Change in unrealized (loss) gain on marketable investment securities.......... (1,021) 1,083
- -----------------------------------------------------------------------------------------------------------------------
Unrealized gain (loss) on marketable investment securities (ending).............. - 1,021
- -----------------------------------------------------------------------------------------------------------------------
Retained deficit (beginning)..................................................... (2,607,363) (2,420,478)
Net income (loss)............................................................. 76,046 (186,885)
Retained deficit (ending)........................................................ (2,531,317) (2,607,363)
- -----------------------------------------------------------------------------------------------------------------------
Treasury stock
Shares........................................................................ (10,917) (10,917)
Amount........................................................................ (6,140) (6,140)
- -----------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity................................................ $ 963,001 $ 887,976
=======================================================================================================================
</TABLE>
25
See notes to the financial statements.
<PAGE>
HYDROMER, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended June 30,
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)............................................................. $ 76,046 $ (186,885)
Adjustments to reconcile net income (loss) to net cash (used in) operating
activities
Depreciation and amortization............................................ 34,769 31,043
Gain on sale of securities............................................... (1,851) -
Changes in Assets and Liabilities
Trade receivables...................................................... (47,862) (69,928)
Inventory.............................................................. (89,989) (38,610)
Prepaid expenses....................................................... (36,716) 5,467
Deferred tax asset..................................................... - (122,495)
Other assets........................................................... (75) 4,383
Accounts payable and accrued liabilities............................... 32,882 (13,544)
Income taxes payable................................................... (38,504) (200,768)
- ---------------------------------------------------------------------------------------------------------------------------
Net Cash (Used in) Operating Activities............................. (71,300) (591,337)
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash purchases of property and equipment...................................... (74,024) (82,684)
Cash proceeds received from sale of marketable investment securities.......... 462,194 1,465,194
Cash purchases of marketable investment securities............................ (190,000) (1,733,474)
- ---------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Investing Activities................. 198,170 (350,964)
- ---------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents............................. 126,870 (942,301)
Cash and Cash Equivalents at Beginning of Year................................... 41,030 983,331
- ---------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year......................................... $ 167,900 $ 41,030
===========================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest................................................................ $ 253 $ 43,335
===========================================================================================================================
Income taxes............................................................ $ 38,658 $ 200,768
===========================================================================================================================
</TABLE>
See notes to the financial statements.
26
<PAGE>
HYDROMER, INC.
NOTES TO THE FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Hydromer, Inc. (The Company) is a polymer research and development
company based in Branchburg, New Jersey. The Company develops polymer
complexes for commercial markets in the medical and industrial fields
primarily in the United States. The Company obtains patent rights on
certain products from which royalty revenues are received.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of short term investments with
maturities of three months or less.
MARKETABLE INVESTMENT SECURITIES
The Company invests in debt and equity securities. These securities were
classified as available-for-sale, and accordingly, unrealized gains and
losses are excluded from earnings and reported in a separate component of
stockholder's equity. Realized gains or losses are computed based on
specific identification of investments sold. Dividend and interest income
are recognized when earned.
INVENTORIES
Inventories are valued at the lower of cost, determined by the first-in,
first-out method, or market and include appropriate amounts of labor and
overhead.
DEPRECIATION
The cost of property and equipment is depreciated on a straight-line
method over the estimated useful lives of the assets: 10 years for
machinery and equipment, 5 years for furniture and fixtures, and the term
of the lease for leasehold improvements. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation are
removed from the accounts, and any resulting gain or loss is reflected in
income for the period. Repairs and maintenance which do not extend the
useful lives of the related assets are expensed as incurred.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred
taxes related primarily to differences between the bases of assets and
liabilities for financial and income tax reporting. The deferred tax
assets and liabilities represent the future tax return consequences of
those differences, which will either be taxable or deductible when the
assets and liabilities are recovered or settled. Deferred taxes also are
recognized for operating losses that are available to offset future
federal and state income taxes.
INCOME PER COMMON SHARE
Income per common share was computed by dividing net income by the
weighted average number of shares of common stock outstanding during each
period.
CONCENTRATION OF CREDIT AND BUSINESS RISK
The Company maintains cash balances in several financial institutions.
Accounts at each institution are insured by the Federal Deposit Insurance
Corporation up to $100,000. At June 30, 1996, the amounts on deposit
exceeded the $100,000 federally insured limit. The Company provides
credit in the normal course of business to customers. Ongoing credit
evaluations of its customers are performed, and allowances for doubtful
accounts based on factors surrounding the credit risk of specific
customers, historical trends, and other information are maintained. The
company maintains patents on the original Hydromer Coating which will
expire during fiscal year ended June 30, 1998.
MAJOR CUSTOMERS
The Company sold products and collected royalty income representing more
than 10% of its total revenues for the year ended June 30, 1996, to
Cordis Corporation (13.9%), and Phoenix Chemical, Inc. (13.4%); for the
year ended June 30, 1995, to Phoenix Chemical Inc. (12.7%).
27
<PAGE>
HYDROMER, INC.
NOTES TO THE FINANCIAL STATEMENTS (Continued)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
<TABLE>
<CAPTION>
INVENTORY
Inventory consists of: June 30,
1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials........................................................... $ 87,558 $ 58,282
Finished goods.......................................................... 83,802 23,089
- ----------------------------------------------------------------------------------------------------------------------------
$ 171,360 $ 81,371
============================================================================================================================
</TABLE>
MARKETABLE INVESTMENT SECURITIES
Information regarding available-for-sale marketable investment securities
for the year ended June 30, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
June 30,
1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Carrying value.......................................................... $ - $ 270,343
Market value............................................................ - 271,364
- ----------------------------------------------------------------------------------------------------------------------------
Gross unrealized gain................................................... $ - $ 1,021
============================================================================================================================
Change in unrealized gain on investment securities...................... $ 1,021 $ 1,083
Proceeds from sales..................................................... $ 272,194 $ 1,733,474
Realized gains on sales................................................. $ 1,851 -
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
June 30,
1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Machinery and equipment................................................. $ 406,200 $ 393,382
Furniture and fixtures.................................................. 92,849 84,343
Leasehold improvements.................................................. 183,672 140,272
- ----------------------------------------------------------------------------------------------------------------------------
682,721 617,997
Less accumulated depreciation and amortization.......................... (460,207) (434,738)
- ----------------------------------------------------------------------------------------------------------------------------
$ 222,514 $ 183,259
============================================================================================================================
</TABLE>
Depreciation expense charge to operations was $34,769 and $31,043 in 1996 and
1995, respectively.
28
<PAGE>
HYDROMER, INC.
NOTES TO THE FINANCIAL STATEMENTS (Continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and equivalents, accounts receivable, accounts
payable and accrued expenses approximates fair value because of the short
maturity of these instruments.
LIMITATIONS
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.
INCOME TAXES
The income tax provision (benefit) is comprised of the following:
<TABLE>
<CAPTION>
Federal State Total
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Year Ended June 30, 1996
Current...................................... $ - $ 100 $ 100
Deferred..................................... - - -
- ----------------------------------------------------------------------------------------------------------
$ - $ 100 $ 100
==========================================================================================================
Year Ended June 30, 1995
Current........................................ $ - $ 50 $ 50
Deferred....................................... (94,655) (27,840) (122,495)
- ----------------------------------------------------------------------------------------------------------
$ (94,655) $ (27,790) $ (122,445)
==========================================================================================================
</TABLE>
The temporary differences causing such deferred tax benefits are primarily
due to net operating loss carryforwards.
At June 30, 1996, the Company has net operating loss carryforwards for
federal and state income tax purposes of $1,527,100 and $233,184,
respectively, which are available to offset future Federal and state
taxable income, if any. The federal and state net operating loss
carryforwards expire as follows:
Federal State
- --------------------------------------------------------------------------------
1999............................. $ 118,561 $ -
2000............................. 703,280 -
2001............................. 188,315 -
2002............................. 138,889 233,184
2003............................. 58,675 -
2010............................. 309,380 -
- --------------------------------------------------------------------------------
$ 1,517,100 $ 233,184
================================================================================
29
<PAGE>
HYDROMER, INC.
NOTES TO THE FINANCIAL STATEMENTS (Continued)
The tax effects of temporary differences that give rise to deferred tax
assets at June 30, 1996 are presented below:
Federal operating loss carryforwards..................... $ 519,214
State operating loss carryforwards....................... 20,987
- --------------------------------------------------------------------------------
Total Gross Deferred Tax Asset.................... 540,201
Less valuation allowance................................. 417,706
- --------------------------------------------------------------------------------
$ 122,495
================================================================================
The valuation allowance for deferred tax assets as of July 1, 1995 was
$447,101. The net change in the total valuation allowance for the year
ended June 30, 1996 was $29,395.
OTHER INCOME
Included in other income is $85,000 the Company received as a settlement
with its former auditors regarding prior period income tax liabilities owed
as a result of being classified as a personal holding company.
STOCK OPTIONS AND AWARDS
On January 23, 1992, the Board of Directors granted options to purchase
12,000 shares of common stock of the Company which are to expire on January
22, 1997, with 4,000 shares being exercisable immediately, 4,000 becoming
exercisable one year from the date of the grant, and the final 4,000
becoming exercisable two years from the date of the grant. The exercise
price of $0.625 per share was equal to the market price at the date of the
grant. At June 30, 1996, 12,000 option shares are exercisable.
The Board of Directors has authorized the Chairman of the Board to grant
options to purchase up to 15,000 shares of the common stock of the Company
to, among others, employees of the Company including executive officers, at
an exercise price of $1.00 per share. At June 30, 1994, 2,750 shares were
exercisable. In November 1994, 2,750 share options under this arrangement
expired. Through the year ended June 30, 1995 no additional options were
granted under this authorization.
In the 1988, 1989 fiscal years and a portion of 1990, the Board of
Directors determined that, in lieu of cash compensation, Directors were to
receive options to purchase 2,000 shares of stock for attendance at each
meeting of the Board at the then current market price of the stock. The
options are to expire five years from date of grant. Fifty four thousand
shares were granted under this option. The option prices range from $0.50
to $0.81. On January 22, 1993, the Board offered all holders of options (3
current directors and 2 former directors) the right to extend their options
to 1995 upon payment of an amount equal to 10% of the market value
($0.50/share). The current Directors, Manfred Dyck and Ursula Dyck, and the
former director, John H. Ewing, elected to extend their 1988 options. Only
Manfred Dyck and Ursula Dyck elected to extend their 1989 options. Options
were not re-priced. The 36,000 and 8,000 option shares under this
arrangement expired in 1995 and 1994, respectively. At June 30, 1995, 4,000
option shares under this arrangement were exercisable. At June 30, 1996,
the $4,000 option exercisable under the January extension have expired.
A summary of activity under the plan for the years ending June 30, 1996 and
1995 is as follows:
Common Stock Options Outstanding
Shares
- --------------------------------------------------------------------------------
Balance June 30, 1994..................................... 54,750
Granted................................................. -
Exercised............................................... -
Canceled................................................ 38,750
- --------------------------------------------------------------------------------
Balance June 30, 1995..................................... 16,000
================================================================================
30
<PAGE>
HYDROMER, INC.
NOTES TO THE FINANCIAL STATEMENTS (Continued)
Common Stock Options Outstanding
Shares
- --------------------------------------------------------------------------------
Balance, June 30, 1995.................................... 16,000
Granted................................................. -
Exercised............................................... -
Canceled................................................ 4,000
- --------------------------------------------------------------------------------
Balance June 30, 1996..................................... 12,000
- --------------------------------------------------------------------------------
Shares exercisable at June 30, 1996....................... 12,000
================================================================================
LEASES
The Company leased two facilities from two different landlords. Total
rental lease expense for the years ended June 30, 1996 and 1995 were
$153,498 and $135,770, respectively. One lease called for payment of $1,800
per month for one year which terminated July 1, 1996. The other lease
signed by the Company on April 1, 1994 was on a month-to-month basis with
payments of $3,125 until a certificate of occupancy was obtained. On
December 1, 1995, the certificate of occupancy was obtained, at which time
a five year lease is in effect. The lease calls for payment by the Company
of all operating costs such as utilities, maintenance, taxes and liability
insurance.
Future minimum rental commitments for the next five years as of June 30,
1996 on the aforementioned lease is as follows:
1997............................................................. $ 75,000
1998............................................................. 79,375
1999............................................................. 91,250
2000............................................................. 101,875
2001............................................................. 43,750
------------------------------------------------------------------------------
$ 391,250
==============================================================================
RELATED PARTY TRANSACTIONS
During 1996 and 1995, the Company sold materials and services to Biosearch
Medical Products, Inc., (BMP), its former parent, for $18,799 and $25,296,
respectively. Amounts owed to the Company by BMP aggregated $7,390 and
$6,781 at June 30, 1996 and 1995, respectively.
31
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Hydromer, Inc.
We have audited the accompanying balance sheets of Hydromer, Inc. as of
June 30, 1996 and 1995 and the related statements of income, stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hydromer, Inc. as of June
30, 1996 and 1995, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
Rosenberg Rich Baker Berman & Company
Bridgewater, New Jersey
July 16, 1996
32
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 167,900
<SECURITIES> 0
<RECEIVABLES> 316,271
<ALLOWANCES> 0
<INVENTORY> 171,360
<CURRENT-ASSETS> 762,041
<PP&E> 682,721
<DEPRECIATION> (460,207)
<TOTAL-ASSETS> 1,055,677
<CURRENT-LIABILITIES> 92,676
<BONDS> 0
0
0
<COMMON> 2,922,708
<OTHER-SE> (1,959,707)
<TOTAL-LIABILITY-AND-EQUITY> 963,001
<SALES> 632,307
<TOTAL-REVENUES> 1,552,358
<CGS> 230,626
<TOTAL-COSTS> 845,675
<OTHER-EXPENSES> 498,572
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 253
<INCOME-PRETAX> 76,146
<INCOME-TAX> 100
<INCOME-CONTINUING> 76,046
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 76,046
<EPS-PRIMARY> .017
<EPS-DILUTED> 0
</TABLE>
