================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D. C. 20549
----------
FORM 10-QSB
----------
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the three months ended September 30, 1997
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( )
Indicate the number of shares outstanding or each of the issuer's classes
of Common Stock as of the close of the period covered by this report.
Class Outstanding at September 30, 1997
---------- ---------------------------------
4,378,904
================================================================================
<PAGE>
HYDROMER, INC.
INDEX TO FORM 10-QSB
September 30, 1997
Page No.
--------
PART 1 - Financial Information
Condensed Financial Statements
Balance Sheets - September 30, 1997 & June 30, 1997............. 2
Statements of Income for the three month periods
September 30, 1997 and 1996................................... 3
Statements of Cash Flows for the three months ended
September 30, 1997 and 1996................................... 4
Notes to Financial Statements................................... 5
Management's Discussion and Analysis of the Financial
Condition and Results of operations .......................... 6
PART II - Other Information............................................... 8
<PAGE>
<TABLE>
HYDROMER, INC.
BALANCE SHEETS
<CAPTION>
September 30, June 30,
1997 1997
---------- ----------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .............................. $ 504,884 $ 716,045
Trade receivables less allowance for doubtful
accounts of $8,831 and $8,831, respectively .......... 420,717 431,150
Inventory .............................................. 150,415 148,753
Prepaid expenses........................................ 119,021 77,567
Deferred tax asset...................................... 100,000 100,000
---------- ----------
Total Current Assets....................................... 1,295,037 1,473,515
Property and Equipment, net............................... 273,203 271,743
Deferred Tax Asset......................................... 230,435 262,856
Other Assets............................................... 11,346 11,968
---------- ----------
$1,810,021 $2,020,082
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................ $ 35,897 $ 29,213
Accrued expenses........................................ 50,160 167,678
Income tax payable...................................... 9,430 40,223
---------- ----------
Total Current Liabilities ................................. 95,487 237,114
---------- ----------
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..................................... (1,648,416) (1,711,350)
Cash Dividends paid..................................... (131,368) --
Treasury stock, 10,917 common shares at cost............ (6,140) (6,140)
---------- ----------
Total Stockholders' Equity ................................ 1,714,534 1,782,968
---------- ----------
$1,810,021 $2,020,082
========== ==========
</TABLE>
2
<PAGE>
HYDROMER, INC.
STATEMENTS OF INCOME
Three Months Ended
September 30,
--------------------------
1997 1996
---------- ----------
UNAUDITED RESTATED
UNAUDITED
REVENUES:
Product sales and services ................... $ 153,385 $ 198,853
Royalties, options and licenses Fees ......... 352,720 329,742
---------- ----------
506,105 528,595
Cost of Product Sales ........................... 58,814 71,201
---------- ----------
Gross profit .............................. 447,291 457,394
Selling, General and Administrative ............. 239,293 192,024
Research and Development ........................ 110,634 106,332
---------- ----------
Operating Income .......................... 97,364 159,038
Interest Income ................................. 7,421 1,898
Interest Expense ................................ -- --
Other Tax (Expense)/Benefit ..................... -- (63,700)
Other Income .................................... -- --
---------- ----------
Income before provison for income taxes ... 104,785 97,236
Provision for Income Taxes Expense (Benefit) .... 41,851 (25,500)
---------- ----------
Net Income ................................ $ 62,934 $ 122,736
========== ==========
Income Per Common Share ................... $ 0.015 $ 0.028
========== ==========
Dividends paid, $.03 per share ............ $ 0.03 $ 0.000
========== ==========
Weighted Average Common Shares Outstanding ...... 4,378,904 4,367,987
========== ==========
3
<PAGE>
<TABLE>
HYDROMER, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Ended
September 30,
----------------------
1997 1996
--------- ---------
Restated
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ................................................ $ 62,934 $ 122,736
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization ........................... 11,752 9,579
Gain on sale of securities .............................. -- --
Changes in Assets and Liabilities
Trade receivables ...................................... 10,433 (75,629)
Inventory .............................................. (1,662) 10,434
Prepaid expenses ....................................... (41,454) (25,334)
Deferred tax asset ..................................... 32,421 (40,000)
Other assets ........................................... 622 (310)
Accounts payable and accrued liabilities ............... (110,834) 39,425
Income taxes payable ................................... (30,793) 14,441
--------- ---------
Net Cash (Used in) Operating Activities ............. (66,581) 55,342
--------- ---------
Cash Flows From Investing Activities:
Cash dividends paid ....................................... (131,368)
Cash purchases of property and equipment .................. (13,212) (6,171)
--------- ---------
Net Cash Provided by (Used in) Investing
Activities ........................................ (144,580) (6,171)
--------- ---------
Net Increase (decrease) in Cash and Cash Equivalents ......... (211,161) 49,171
Cash and Cash Equivalents at Beginning of Year ............... 716,045 167,900
--------- ---------
Cash and Cash Equivalents at End of Year ..................... $ 504,884 $ 217,071
========= =========
</TABLE>
4
<PAGE>
HYDROMER, INC.
Notes to Financial Statements
The company has filed a restated annual form 10K-SB and accordingly, has
restated the financial results for the quarter ended 9/30/96 on this 10QSB. The
prior period Financial Statements have been restated to reflect the under
reporting of royalty receivables from a licensee. The restatement affected
royalty revenues and as a result the restatement was significant enough to
classify the company as a personal holding company requiring a significant tax
accrual at year end, a portion of which was also restated in this quarter.
On August 14, 1997 the Company entered into an agreement with a consulting firm
whereby the firm will help create a business plan and assist the Company to get
listed on a regional stock exchange. Hydromer is obligated for payment of a
$2,500 monthly fee to the firm, cancelable anytime. Additionally, upon certain
criteria being met, the firm is entitled to 150,000 warrants or the Company's
common stock at an agreed upon price. Mr. Brice is a partner in the firm.
In the opinion of management, the accompanying unaudited financial statements
include all adjustments (consisting of only normal adjustments) necessary for a
fair presentation of the results for the interim periods.
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company's revenues for the quarter ended September 30, 1997 were $506,105 as
compared to $528,595 for the same period last year, or down 4.3%. Revenue is
comprised of:
Royalty revenue from patented products grew to $352,720, up 7.0% over the
same period last year. There are 23 clients who use our patented
technologies on their products and this growth is purely from our client's
increased sales of their products. No new licensees were added during this
quarter. The company is currently testing other products that have
exclusive and non-exclusive licensing opportunities.
Product sales of our technologies were $153,385 for the quarter ended
September 20, 1997 as compared to $198, 853 for the same period last year,
or down 22.9%. This shortfall is primarily due to the loss of one contract
for condensation control in Italy. The Company's strategy is to intensely
develop the markets for its products and license opportunities.
The Company's gross profit was down 2.2% for the quarter ended September 30,
1997 to $447,291 from $457,394 for the same period last year.
Gross Profit percentage on product sales was 61.7% for the quarter ended
September 30, 1997 as opposed to 64.2% for the same period last year. This
drop is primarily due to the addition of production staff needed to
respond to the pressure of the market.
Royalty income is included in gross profit at 100%.
SG&A expenses increased $51,570 or 17.3% to $349,927, in the quarter ended
September 30, 1997, up from $298,357 for the same period last year.
This increase is attributable to management's recent program to evaluate
and upgrade staff where needed. The company needs to improve its
technical, marketing and financial expertise to respond to the
requirements of the business plan.
Earnings before interest and taxes were $97,364, down 38.8% from prior year's
results of $159,037.
Net earnings were $62, 934 for the quarter ended 9/30/97, down from $122,735
reported for the same period last year.
The company did not record an accrual for personal holding company taxes
as it will not be required to pay PHC taxes in FY 1997 due to operating
and strategic plans in place. For the quarter ended 9/30/96, the company
accrued $63,700 in personal holding company taxes which have been paid.
The company recorded a tax benefit for the quarter ended September 30,
1996 in the amount of $25,500. The quarter ended September 30, 1997
reflects a tax accrual for Federal and State taxes of $41,851.
6
<PAGE>
Financial Condition
Working capital decreased $36,851 for the quarter, which includes a dividend
payment of $131,368, which was paid to shareholders in September 1997. Excluding
the dividend payment, working capital increased by $94,517 over the prior
quarter.
7
<PAGE>
PART II - Other Information
Item 6. Exhibits and Reports on form 8-K:
a) Exhibits - none
b) Reports on form 8-K - There were no reports on Form 8-K filed for the
quarter ending September 30, 1997
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on his behalf by the
undersigned thereunto duly authorized.
HYDROMER, INC.
/s/ KEN BRICE
---------------------------------
Ken Brice
Vice President
Finance & Administration
Chief Financial Officer
DATE: November 10, 1997
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> SEP-30-1997
<CASH> 506
<SECURITIES> 0
<RECEIVABLES> 421
<ALLOWANCES> 9
<INVENTORY> 150
<CURRENT-ASSETS> 1,295
<PP&E> 788
<DEPRECIATION> 515
<TOTAL-ASSETS> 1,810
<CURRENT-LIABILITIES> 95
<BONDS> 0
0
0
<COMMON> 2,923
<OTHER-SE> (1,113)
<TOTAL-LIABILITY-AND-EQUITY> 1,810
<SALES> 506
<TOTAL-REVENUES> 506
<CGS> 59
<TOTAL-COSTS> 447
<OTHER-EXPENSES> 350
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (7)
<INCOME-PRETAX> 105
<INCOME-TAX> 42
<INCOME-CONTINUING> 63
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63
<EPS-PRIMARY> 0.015
<EPS-DILUTED> 0.015
</TABLE>
